Why Does a Risk Manager Typically Focus on the Upper

question 61

Multiple Choice

Why does a risk manager typically focus on the upper tail of the probability distribution?

• A) The upper tail shows the amount of coverage of the risk a firm faces.
• B) The upper tail shows the total risk pool.
• C) The upper tail shows the confidence interval of the loss distribution.
• D) The upper tail shows the sum of the estimated mean loss plus the risk charge.

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Definitions:

Straight-Line

A method of calculating depreciation of an asset which assumes the asset will lose an equal amount of value each year.

Sunk Cost

Costs that have already been incurred and cannot be recovered or changed, and thus should not affect future business decisions.

Salvage Value

The anticipated residual value of an asset after it has been fully depreciated and is no longer in use.

Net Working Capital

The variance between a corporation's current assets and its current debts, highlighting its short-term financial status.