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RMIN 4000 uga test 1 Study Guide Solutions Updated 2024
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RMIN 4000 uga test 1 Study Guide Solutions Updated 2024 types of risk - ANSWER--pure risk -speculative risk -diversifiable risk -nondiversifiable risk -enterprise risk -systemic risk risk - ANSWER-uncertainty concerning the occurrence of a loss uncertainty - ANSWER-probabilities cannot be ...

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  • November 13, 2024
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RMIN 4000 uga test 1 Study Guide
Solutions Updated 2024

types of risk - ANSWER✔✔--pure risk


-speculative risk


-diversifiable risk


-nondiversifiable risk


-enterprise risk


-systemic risk


risk - ANSWER✔✔-uncertainty concerning the occurrence of a loss


uncertainty - ANSWER✔✔-probabilities cannot be estimated


loss exposure - ANSWER✔✔-any situation or circumstance in which a loss is possible,

regardless of whether a loss actually occurs


example: earthquake or flood causing damage to a manufacturing plant


objective risk (degree of risk) - ANSWER✔✔-the relative variation of actual loss from

expected loss


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,example:10,000 houses insured of a long period of time and on average 100 houses burn

each year, however it would be rare for exactly 100 to burn each year


law of large numbers - ANSWER✔✔-as the number of exposure units increases, the

more closely the actual loss experience will approach the expected loss experience




example: as the number of homes under observation increases, the greater is the degree

of accuracy in predicting the proportion of homes that will burn


subjective risk (perceived risk) - ANSWER✔✔-uncertainty based on a person's mental

condition or state of mind




example: driver with previous convictions for drunk driving tries to drive home and

wonders if he will get arrested by the police or not


chance of loss - ANSWER✔✔-the probability that an event will occur


objective probability - ANSWER✔✔-the long run relative frequency of an event based

on the assumptions of an infinite number of observations and of no change in the

underlying conditions


two ways objective probability can be determined - ANSWER✔✔-1) deductive

reasoning (priori probabilities): probability of getting a head from the toss of a perfectly

balanced coin is 1/2 bc there are two sides
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, 2) inductive reasoning: the probability that a person age 21 will die before age 26 cannot

be logically deduced, life insurers can estimate the probability of death and sell a 5 year

life insurance policy for a 21 yr old


subjective probability - ANSWER✔✔-the individual's personal estimate of the chance of

loss


example: people who buy a lottery ticket on their birthday may believe it is their lucky

day and overestimate the small chance of winning


objective risk - ANSWER✔✔-the relative variation of actual loss from expected loss


peril - ANSWER✔✔-the cause of loss


example: house burns down, peril is the fire


hazard - ANSWER✔✔-condition that creates or increases the frequency or severity of

loss


4 types of hazards - ANSWER✔✔-1) physical hazard


2) moral hazard


3) attitudinal hazard


4) legal hazard


physical hazard - ANSWER✔✔-physical condition that increases the frequency or

severity of loss.

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