Statistics Risk Assessment & Management 4

Question 1

Risk appetite differs from risk tolerance in that risk appetite refers to:

Accepted Answer

The broad amount of risk an entity is willing to pursue to achieve objectives

Answer

Risk appetite is the strategic, forward-looking statement of how much risk an organization is willing to accept in pursuit of its goals.

Question 2

In Fault Tree Analysis (FTA), AND gates produce a top-level failure only when:

Accepted Answer

All input events occur simultaneously

Answer

An AND gate in FTA requires all contributing (input) events to occur together before the parent (output) failure event is triggered.

Question 3

Which distribution is most appropriate for modeling the number of claims filed to an insurance company per month?

Accepted Answer

Poisson distribution

Answer

The Poisson distribution models count data of rare events occurring at a known average rate over a fixed period, matching insurance claim counts.

Question 4

A project has a 30% chance of a $500K loss and a 70% chance of a $100K gain. What is the expected monetary value (EMV)?

Accepted Answer

−$80,000

Answer

EMV = 0.30 × (−$500,000) + 0.70 × ($100,000) = −$150,000 + $70,000 = −$80,000.

Question 5

In the context of risk, 'black swan' events are characterized by:

Accepted Answer

Extreme rarity, severe impact, and post-hoc rationalization as predictable

Answer

Black swan events (Nassim Taleb) are highly improbable, massively consequential outliers that are retrospectively explained as if they were predictable.

Statistics Practice Test

Statistics Practice Test

Statistics Risk Assessment & Management 4