CPCU 520: Practice exam 1 & 2
Questions and Verified Answers, 100% Score Guarantee Pass (Latest 2025) Calculate gross margin, given the following: Revenue:
$1,000,000. Beginning inventory: $500,000. Additional
inventory: $25,000. Ending inventory: $50,000. Taxes: 5%.
Investment gain: $75,000. - Correct Answers ✅Gross
Margin = Gross Profit ÷ Sales Step 1) Calculate cost of goods sold = ($500,000 + $25,000)
- $50,000 = $475,000
Step 2) Calculate gross profit = $1,000,000 - $475,000=
$525,000
Step 3) Calculate gross margin = $525,000 ÷ $1,000,000
=52.5%
X-Bot Robotics Company generated $500,000 in revenue in
- In 2016 X-Bot's cost of goods sold was $200,000, taxes
were $50,000, and depreciation totaled $25,000. What is X- Bot Robotics Company's gross margin? - Correct Answers ✅Gross Margin = Gross Profit ÷ Sales Step 1) Calculate gross profit = $500,000 - $200,000 =
$300,000
Step 2) Calculate gross margin = $300,000 ÷ $500,000 = 60% Big Blocks Company issues 15,000 shares of common at $20 per share. Big Blocks issues the stock with a $0.15 par value and pays a dividend of $0.25 per share. Big Blocks retained 1 / 4
CPCU 520: Practice exam 1 & 2
Questions and Verified Answers, 100% Score Guarantee Pass (Latest 2025) earnings prior to issuing the 15,000 shares is $50,000, and its net income is $25,000. Calculate the paid-in capital for Big Blocks Company. - Correct Answers ✅Paid in capital is the money raised by a company that is issuing stock. This is the amount of capital "paid in" by investors, meaning the amount of money contributed by investors. This does not include any funds generated from ongoing business operations.Paid in capital = 15,000 shares X $20 per share = $300,000 Mac, an analyst for XYZ Firm, is attempting to compare the financial statements of Big Couches Company and Discount Furniture Co. in order to determine the best investment. Big Couches Company generates $1 billion in annual revenue, whereas Discount Furniture Co. generates $5 million in annual revenue. Which of the following should Mac use to compare these two companies? - Correct Answers ✅Vertical analysis is the process of using a common size statement to analyze financial reports. A common size statement enables the reader to compare data points from the financial statements of two different companies. This allows the reader to evaluate the financial performance of two companies of different size. Otherwise, it is difficult to compare different size companies. For instance, when comparing the financial statements of a billion-dollar corporation to the financial statements of a million-dollar corporation, the billion-dollar corporation's finances are skewed and look much larger than the million-dollar corporation's finances. The common size statement compares 2 / 4
CPCU 520: Practice exam 1 & 2
Questions and Verified Answers, 100% Score Guarantee Pass (Latest 2025) each company's performance to its relative size (revenue) to allow for an equal comparison.Bill, an investor, is looking to review the financials of ABC Co.as a potential long-term investment. Bill is interested in reviewing the profitability of ABC Co. What financial statement should Bill review? - Correct Answers ✅The income statement is a financial statement that reports a company's financial performance over a specific period of time. This reports the company's sales, expenses, and net income. Hence, Bill can use the income statement to review the profitability of ABC Co.If an insurer underestimates loss reserves, - Correct Answers ✅Rates will not be adequate- If reserves are too low, then rates will not be adequate to remain profitable.Insurers should focus to track and measure their ability to meet customer needs. The retention ratio is an important measure to monitor customer needs. Which of the following is true regarding retention ratio? - Correct Answers ✅This is the percentage of policies that are renewed for another period of insurance after the policy expires. 3 / 4
CPCU 520: Practice exam 1 & 2
Questions and Verified Answers, 100% Score Guarantee Pass (Latest 2025) The retention ratio calculates the number of policies that choose to renew their insurance coverage for another policy period. This is calculated as the number of renewals that are accepted divided by the number of renewals that are offered.The loss ratio of ABC Insurance Company increased from 70% last year to 85% this year. Senior management of ABC Insurance would like to improve their loss ratio to 85% by next year. Which of the following describes how the Claims department can help to improve the loss ratio? - Correct Answers ✅An increasing loss ratio can indicate that the Claims Department is not operating effectively. The Claims Department should attempt to reduce loss-adjusting expense (LAE) to improve the loss ratio. LAE can be reduced by settling claims out of court. This keeps legal expenses down.Avery is an underwriter reviewing a new auto application. He has researched the exposures faced by the applicant and decides to accept the application for a premium of $800 a year, only if the applicant agrees to include a $1,000 deductible on their policy. What is the next step in the underwriting process for Avery? - Correct Answers ✅Avery must communicate his decision to the producer and applicant.After the application has been reviewed, modified, and assigned a premium, the underwriter must make a final underwriting decision. The underwriter must choose to accept
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