UECM2433
Tutorial 1
Chapter 1
Short Questions
1.
List the major types of pure risk that are associated with great financial insecurity.
2.
Describe the major social and economic burdens of risk on society.
3.
Explain the difference between a direct loss and an or consequential loss.
4.
Identify and explain the major risks faced by business firms.
Application Questions
1.
Assuming that the chance of loss is 3 percent for two different fleets of trucks. Explain
how it is possible that objective risk for both fleets can be different even though the
chance of loss is identical.
2.
Several types of risk are present in the American economy. For each of the following,
identify the type of risk that is present. Explain your answer.
a The Department of Homeland Security alerts the nation of a possible attack by terrorists.
b A house may be severely damaged in a fire.
A family head may be totally disabled in a plant explosion.
d. An investor purchases 100 shares of Microsoft stock.
e. A river that periodically overflows may cause substantial property damage to
thousands of homes in the floodplain.
f. Home buyers may be faced with higher mortgage payments if the Federal Reserve
raises interest rates at its next meeting.
g. A worker on vacation plays the slot machines in a casino.
3.
There are several techniques available for managing risk. For each of the following risks,
identify an appropriate technique, or combination of techniques, that would be
appropriate for dealing with the risk.
a. A family head may die prematurely because of a heart attack.
b. An individual's home may be totally destroyed in a hurricane.
c. A new car may be severely damaged in an auto accident.
d. A negligent motorist may be ordered to pay a substantial liability judgment to someone
who is injured in an auto accident.
e. A surgeon may be sued for medical malpractice.
f. An individual may be forced to declare bankruptcy because he or she cannot pay
catastrophic medical bills.
4.
Michael is a college senior who is majoring in marketing. He owns a high-mileage 2000
Ford that has a current market value of $2500. The current replacement value of his
clothes, television, stereo, cell phone, and other personal property in a rented apartment
UECM2433
Tutorial 1
Chapter 1
totals $10,000. He wears disposable contact lenses, which cost $200 for a six-month
supply. He also has a waterbed in his rented apartment that has leaked in the past. An
avid runner, Michael runs five miles daily in a nearby public park that has the reputation
of being extremely dangerous because of drug dealers, numerous assaults and muggings,
and drive-by shootings. Michael's parents both work to help him pay his tuition.
For each of the following risks or loss exposures, identify an appropriate risk
management technique that could have been used to deal with the exposure. Explain your
answer.
a. Physical damage to the 2000 Ford because of a collision with another motorist
b. Liability lawsuit against Michael arising out of the negligent operation of his car
c. Total loss of clothes, television, stereo, and personal property because of a grease fire
in the kitchen of his rented apartment
d. Disappearance of one contact lens
e. Waterbed leak that causes property damage to the apartment
f. Physical assault on Michael by gang members who are dealing drugs in the park where
he runs
g. Loss of tuition assistance from Michael's father who is killed by a drunk driver in an
auto accident