CPCU 540 Practice Exam 2


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1. With respect to capital structure management, which one of the following represents a major question a financial manager needs to answer?

2. Cost of goods sold is reported as:

3. Which one of the following represents a liquidity ratio that measures an organization’s ability to meet its current financial obligations?

4. RealGood Insurance (RI) is domiciled in the state of Oklahoma. They are entering into a reinsurance arrangement with Awesome Reinsurers (AR). AR is not licensed in the state of Oklahoma. Under statutory accounting principles, RI would be required to create a liability for reinsurance recoverables on its balance sheet, unless:

5. Super Insurance Company had the following financial data:
• Written Premium - $12,000,000
• Losses - $4,000,000
• Underwriting Expenses - $1,200,000
• Net Income - $1,500,000
• Policyholders’ Surplus - $18,000,000
• Cash - $3,500,000
• Marketable Securities - $12,000,000
• Liabilities - $8,500,000
What is their return on policyholder surplus?

6. Joe’s daughter plans to enroll in college in six years. At the time of her enrollment, tuition costs are expected to be $15,000 per year. Assuming Joe can earn 7% compounded semi-annually on his investments, how much must he invest today to fund his daughter’s first year tuition in six years?

7. A specialty insurer has been the only insurer offering liability insurance in West Texas over the last few years. Another insurer has decided to start offering liability insurance in West Texas beginning next month. Which one of the following risks is the specialty insurer exposed to in this situation?

8. A credit card company sold its receivables to David for cash. The interest and principal repayments on the credit cards will be passed directly to David after passing through the credit card company. David has purchased a(n):

9. Which one of the stocks listed below is the least risky investment based on the coefficient of variation?

Standard Deviation

Average Return

Stock 1



Stock 2



Stock 3



Stock 4



10. Which one of the following statements is correct regarding an insurer’s use of external methods to meet capital needs?