Unit quiz: Transferring Risk, Shifting the Sequence, and Auditing Claims

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5 questions · 80% to pass · no timer. This quiz checks the lessons in this unit. These authored questions assess recognition and application of the taught distinctions, not professional qualification. You may review the lessons and retry. Repeat attempts reuse the question bank; a remembered answer is not proof of transfer to a new situation.

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Question 1

Two retirees hold $500,000 each, withdraw $25,000 at the start of every year, and experience the same set of annual returns over ten years: plus 20% and minus 20% alternating. In the first case the sequence begins with the gain, in the second with the loss. Which retiree ends lower and why?The retiree whose loss comes first, because the withdrawal removes a larger share of a smaller baseThe retiree whose loss comes last, because the withdrawal is taken before more years of compounding can act on the gain

Question 2

Which of these exposures is the better candidate for self-insurance with a funded reserve rather than for a purchased policy?A liability judgment that could exceed your savings, because part of it could be repaid out of future incomeA small, frequent loss whose cost your reserve can absorb without affecting any goal

Question 3

A single premium immediate annuity quotes a 6.0% payout rate at your age, and an advertisement describes that figure as a 6% return. What does the payout rate actually represent?The annual payment divided by the premium paid, which includes return of principal and mortality poolingThe interest rate the insurer credits to the contract balance for as long as the payments continue

Question 4

A parent's will divides everything equally among three children. The retirement account at the same institution carries a beneficiary designation naming only the eldest child and has not been reviewed in eleven years. What happens to the account?It is divided three ways, because the will is the more complete statement of intent and covers all of the parent's propertyIt transfers to the named beneficiary, because the designation moves the asset outside the estate that the will disposes of

Question 5

An advertisement states a 12% average annual return over five years on a strategy and projects $50,000 growing to $88,117.08 at that rate. You recompute the same five annual returns, which are plus 30%, minus 15%, plus 25%, minus 2% and plus 22%, and get $82,571.12. What is the defect in the projection?The arithmetic average overstates the compound rate, which is 10.55% on those returnsThe projection is arithmetically wrong, because an average of five annual returns can never be used to project a balance

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