RMI Test 1

Question 1

Diminishing marginal Utility

Answer 1

As you consume more of something you value each additional unit less.

Question 2

Pure risk

Answer 2

risk with no chance of gain

Question 3

Speculative risks

Answer 3

risks with chance of gain

Question 4

Static risk

Answer 4

Risk does not change over time

Question 5

Peril

Answer 5

immediate cause of loss, event immediately before the loss

Question 6

Hazard

Answer 6

anything that increases frequency, severity, or both

Question 7

Direct loss

Answer 7

settlement or if you go to trial the judgment

Question 8

Indirect loss

Answer 8

Everything that costs you money due to the peril happening other than direct loss

Question 9

Cost of risk control

Answer 9

Anything an individual/firm does to try and make losses less severe and frequent.

Question 10

Cost of risk financing

Answer 10

Extra cost of paying for loses

Question 11

Cost of risk aviodnece

Answer 11

Risk is so bad that you don’t enter the market to begin with

Question 12

Objective measurement

Answer 12

consistent across individuals. No room for interpretation

Question 13

Subjective easurment

Answer 13

margin for interpretation

Question 14

Discrete distributions

Answer 14

limited # of options, each option has a probability, all probabilities add to 1

Question 15

Continuous distributions

Answer 15

infinite number of options, probability of any specific # is 0, area under curve = 1

Question 16

Variance

Answer 16

avg. squared distance to the mean

Question 17

Standard deviation

Answer 17

square root of variance, avg. distance to the mean

Question 18

PMAX

Answer 18

Max premium willing to pay

Question 19

Pure premium

Answer 19

main cost for insurers to cover claims