Name:
PEN
FO S丁ER
COLLEGE
lNSTRUCTORUSEONしY
GRADE �GRADEDBY
Y �OUR �S丁U �DEN �丁NO � �
EXAMiNA丁iONNO.
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Risk Management
Proctored Final Examination
part A。 Answer each of the fo格一owing questions in a sho「t composition・ Each
answer is wor亡h 20 po巨nts"
1, Rocky′s Bage-s, Inc' is a sm訓bagei sandwich restaurant. Rocky is concemed about
the 「isk of empIoyees cutting themse-ves on亡hejob. Assuming that Rocky has no
interest in expanding his operation′ Which of the major risk management methods are
Iikely to be most important to Rocky? Which w用no亡be approp「iate for Rocky?
Explain.
2. Ho聞ng more economic capital reduces the risk of insoIvency for an insure「 Should
inSurerS hold sufficient capitai to reduce insolvency risk to zero? Why o「 why no亡?
3, Stat:e X has recently decided to prohibit the use of age′ gender7 and marital stat:uS aS
at:ing fact:OrS for auto insurance premiums. Discuss the potentia=mpact on premlumS′
the residual market, and availab冊y of insurance・
(Con亡/nUed or) reVeISe 51de)
誌蒜講話叢需詳言舶蝦闘醐醐醒帥軸闘融融醐畿轡Proctored Final Examination
part B. Answer eaCh of the fol!owing 。ueStions in three to five sentences" Each
answer is worth 5 points。
1. Assume that the fo。owing probab用ty distribution exists for automob嶋damages‘
compute the expected value of the damages and帥n the chart beIow.
Possib書eOutcomesfor �Probability �ExpectedValue
Damages ��OfDamages
$ -0- �与0% �
串 700 �30% �
車11与00 �10% �
隼 4,000 �6% �
$12,000 �4% �
丁ot己!; � �
2. Brief~y define each of the fo=owing亡e「ms:
a. Loss contrOl
, Loss p「eVention
c. Loss reduction
d. Loss avoidance
e. pre」oss a⊂tivities
3. Complete the following table′ by replacing亡he question marks with a pius sign (+) to
indicate an increaSe O「 a m血S Sign (-) to indicate a decrease・
Determinants . �Ca= Option P「ice �Put Option P「ice
PriceofunderIyingasSetincreases �キ了 �?
ExercisepriceincreaseS �? �了
Volat冊yinretu「nOfunderiyingassetincreases �? �?
Timetomaturityinc「easeS �? �?
InterestrateSincrease �? �了
4. Explain the advantageS and disadvantages of cafeteria benefit pIans.
写告高枕率だ.眺珊・ -ソ、 、・ゝ、ヾ・函〇秒・融称舶来′蕪,貌隣機鋒m紛秘紛卿枇豹灘的膨細機嫌海瀬醐蜂鞘拙宅光りご玲糊湖蹄翻秘技舶→拘筏多的ペcう
羨 Proctored Finai Examination
5. Marginal P「oduct′ Inc' has 4′900 workers Iocated at pIants in many diffe「ent locations.
Based on historical data, Ma「ginaI estimates that the tota=oss per worker per year †S
$300 and the standard deviation of tota=osses per worke「 is $1,000. Assume that the
tota=oss distribution can be estimated as a normai distribution,
a. what are the expected tota=osses fo「 Marginal Product forthe coming year?
, What is the expected standa「d deviation of tota=osses for the coming year?
c. what is MarginaI Product′s maximum p「obable loss at the 95% level?
6, High-「isk drivers are often able to buy insurance at less than their true expected
claims costs since their costs are subsidized by iow-risk d「ivers. What is the potentiaI
cost to society when high十isks don′t pay訓the costs associated with their bad
d「iving?
7. Poo-ing a
angements a「e designed to 「educe the risk to members ofthe poo上Expiain
the impact on risk reduction as the …mber of pa巾cipants in the pooi increase′ a=
other factors equa上What happens to the expected cost of risk per parti⊂ipant as the
POOI size increases?
8. Define each ofthe folIowing terms:
a. Defined benefit plan
, Defined contribu亡ion
C. Cash balance pIan
9. P「ovide a desc「iptive formula for each ofthe foilowing (e.g., lt)taI risk =? +?):
a. 「t)taI 「isk=
, Discount rate =
C. Adjusted NPV =
10. In what way is the cu「rent system of product ‖ab冊y regressive?
P「octored Final Examination