21) Which of the following statements about the exposure units and risk pooling is not correct?

A) Exposure units should not be exposed to risk in order to be added to the risk pool.

B) Risk pooling is the ability to reduce the risk of an exposure unit by creating more homogenous pool of units.

C) Risk pooling works best if the number of exposure units is small.

D) Risk pooling is the ability to reduce the risk of an exposure unit by making more accurate predictions about a large pool of units.

22) Which of the following statements about the risk pooling is correct?

A) Risk pooling works best if the number of parties involved is small.

B) Risk pooling reduces the standard deviation of the loss distribution.

C) Risk pooling increases the loss probability.

D) Risk pooling can be used to increase the cost of bearing risk.

23) Which of the following statements about the probability distributions is correct?

A) The shape of a probability distribution is not dependent on the number of observations.

B) All probability distributions are normal.

C) A non-normal probability distribution will lead to a better estimate of future losses.

D) All of the above are incorrect.

24) Which of the following statements about the risk reduction is correct?

A) When the probability distribution is non-normal, risk cannot be reduced by increasing the pool size.

B) After the pool size has reached 36, risk can no longer be reduced any further.

C) Risk is reduced as the pool size increases.

D) All of the above are correct.

25) Which of the following statements about probability of occurrence is correct?

A) The range of values found by adding and subtracting one standard deviation to the mean of the random variable accounts for 68.26 percent of the area under the curve.

B) The range of values found by adding and subtracting two standard deviations to the mean of the random variable accounts for 68.26 percent of the area under the curve.

C) The range of values found by adding and subtracting two standard deviations to the mean of the random variable accounts for 99.74 percent of the area under the curve.

D) All of the above are incorrect.

26) Given the requisites of risk pooling, which of the following exposures would make the best subject of a profitable insurance pool? Assume a premium appropriate to the exposure is charged and analyze the exposure from the insurer’s standpoint.

A) Insuring all the lives of college seniors in the U.S. for $10,000 each, without an initial medical exam

B) Insuring college students against their GPA falling below a 3.0

C) Insuring all the dorms on a single college campus against property damage

D) Insuring students against the theft or disappearance of textbooks

27) If insurers didn’t practice pooling, what would happen?

A) They would save a lot of time and money by not having to do difficult calculations.

B) They would make a handsome profit since they would get to sell a lot of insurance to a lot of people.

C) The insurance mechanism would become unfeasible.

D) The insurance mechanism would become the largest money-making venture in the United States.

28) Which of the following statements about the confidence interval is correct?

A) A confidence interval tells the insurer something about how confident it should be about the calculated risk premium.

B) A confidence interval tells the insurer something about the size of the risk pool.

C) A confidence interval tells the insurer something about how much money it has reserved in the past year to cover potential losses.

D) All of the above are correct.

29) Which of the following statements about the confidence interval is not correct?

A) A confidence interval is based on the outcomes of the probability distribution.

B) A confidence interval is calculated by adding and subtracting the standard deviation to/from the estimate of mean expected loss.

C) A confidence interval tells the insurer something about the size of the risk pool.

D) A confidence interval tells the insurer something about how much money it needs to cover potential losses.

30) What is the so-called Risk Charge?

A) Risk Charge represents how much an insurance company should charge for people not paying their insurance premium.

B) Risk Charge represents the margin of error arising from estimating an unknown variable.

C) Risk Charge represents the standard deviation of the variance.

D)

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