BFIN 640 Exam 1 SAMPLE QUESTIONS AU2011 - Dr. Rives...

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Dr. Rives Business Finance 640 Exam 1 SAMPLE QUESTIONS ____ 1. Fisher Insurance has a surplus-share treaty with Maxum Reinsurance. Fisher’s retention limit is $300,000, and the company has ceded nine lines to Maxum. Which of the following statements concerning fire insurance policies issued under this arrangement is correct? A. If a policy were issued for $1.2 million, Fisher would be required to pay $90,000 of a $360,000 claim. B. Fisher and Maxum would split the amount of any claim in excess of $300,000. C. Fisher’s total underwriting capacity on any single policy would be $3.3 million. D. Maxum would always be responsible for payments in excess of $300,000 on any claim. ____ 2. Houser Pharmaceuticals had hoped to market a new hypertension drug. However, while the Food and Drug Administration (FDA) was testing the drug, it discovered that the drug produced a harmful side effect. When Houser learned of the FDA’s test result, management decided to abandon plans to produce and distribute the drug on a large scale. The company’s reaction to the FDA test result illustrates: A. risk avoidance. B. hedging. C. risk transfer. D. risk retention. ____ 3. A small property and liability insurance company concentrated its underwriting efforts in one city in Oklahoma. When a wicked tornado season damaged a large number of structures in the city, the insurer did not have enough to cover thousands of resulting claims and was declared insolvent by the state insurance director. Which requirement of an insurable risk was violated in this scenario?
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This note was uploaded on 11/20/2011 for the course FINANCE 640,722 taught by Professor Chabiyo,reeves during the Fall '11 term at Ohio State.

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BFIN 640 Exam 1 SAMPLE QUESTIONS AU2011 - Dr. Rives...

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