CPCU 540 Practice Exam 1


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1. The maximization of shareholder wealth is a main goal of corporate finance. This goal is best accomplished by:

2. Which one of the following items would be included on a company’s balance sheet?

3. An insurance company wants to use trend analysis to determine its success in meeting revenue goals for the past two years. The analysis will most likely focus on:

4. On a balance sheet prepared in accordance with statutory accounting principles (SAP), policyholders’ surplus is best represented as:

5. Quality Insurance Company’s financial statements reflect the following amounts:
• Losses and Loss Adjusting Expense Reserve – $15,000,000
• Net Written Premiums – $10,000,000
• Earned Premiums – $7,000,000
• Policyholders’ surplus – $12,000,000
Based on this information, Quality’s premium-to-surplus ratio is:

6. The effective annual interest rate for a 4% nominal rate that is compounded semi-annually is:

7. Which one of the following is the determining factor as to whether a security is being traded in the primary or secondary market?

8. Which one of the following statements is correct regarding preferred stock?

9. Which one of the following measures a stock’s volatility in relation to the overall market?

10. Howard Insurance Company (HIC) presently owns an office building that houses their headquarters. The building is reported as an asset on its balance sheet at its $6,000,000 historical cost. HIC is currently considering the implementation of a sale-leaseback transaction with the building. The building would be sold for $10,000,000, and HIC would then rent the building from the buyer for $600,000 per year. What would be the current effect on HIC’s financial statements if the sale-leaseback transaction were completed?