All of the following statements about risk retention are true EXCEPT A) It may be used intentionally if commercial insurance is unavailable. B) It may be used passively because of ignorance. C) Its use is most appropriate for low-frequency, high-severity types of risks. D) Its use results in cost savings if losses are less than […]
The long-run relative frequency of an event based on the assumption of an infinite number of observations with no change in the underlying conditions is called A) objective probability. B) objective risk. C) subjective probability. D) subjective risk. ANSWER Answer: A
Which of the following statements about a priori probabilities is correct? A) They are subjective probabilities based on ambiguity in the way probability is perceived. B) They are subjective probabilities that may vary among individuals because of factors such as age, gender, education, and the use of alcohol. C) They are objective probabilities that can […]
Carelessness or indifference to a loss is an example of A) physical hazard. B) objective probability. C) moral hazard. D) attitudinal hazard. ANSWER Answer: D
Faking an accident to collect insurance proceeds is an example of A) physical hazard. B) objective risk. C) moral hazard. D) attitudinal hazard. ANSWER Answer: C
Dense fog that increases the chance of an automobile accident is an example of a A) speculative risk. B) peril. C) physical hazard. D) moral hazard. ANSWER Answer: C
An earthquake is an example of a(n) A) moral hazard. B) peril. C) physical hazard. D) objective risk. ANSWER Answer: B
Taylor Tobacco Company is concerned that the company may be held liable in a court of law and ordered to pay a large damage award to a smoker harmed by the company’s cigarettes. The characteristics of the judicial system that increase the frequency and severity of loss are known as A) moral hazard. B) particular […]
Some characteristics of the judicial system and regulatory environment increase the frequency and severity of loss. This hazard is called A) moral hazard. B) physical hazard. C) attitudinal hazard. D) legal hazard. ANSWER Answer: D
A name that encompasses all of the major risks faced by a business firm is A) financial risk. B) speculative risk. C) enterprise risk. D) pure risk. ANSWER Answer: C
