CPCU® 500 Exam Questions

In this blog, we will break down two example CPCU® 500 exam questions. These questions are taken directly from our CPCU® 500 online course, the questions are designed to mimic the format and feel of the actual exam.

About the CPCU® 500 Exam Questions

The CPCU® 500 exam is a 65-minute virtual exam consisting of 50 multiple-choice questions. Exams are virtual, and non-proctored, meaning you take the exam alone online directly from your computer. All questions on the virtual exam will be application-based scenario questions. These are tricky questions that require you to apply your knowledge to a real-life scenario to choose the appropriate answer (you will not be repeating a definition or concept). You will be given a real-life scenario; your job will be to select the best recommendation to solve the given scenario.

If you have not previously taken an institute’s administered exam, you will be in for quite the surprise. The questions on these CPCU® exams will be much different than what you may be used to on a typical exam that you took in high school or college. These questions require you to fully understand every aspect of the main topics and require you to actually apply the knowledge, rather than just repeating a definition. I cannot stress this importance enough, the content of the CPCU® 500 exam is not difficult, but the format is tricky. You must fully understand a topic, DO NOT simply memorize definitions and think you will be able to pass (trust me, I’ve been there!)

You can download one of our free practice exams to see what these questions look like.

Time constraint

Remember, the CPCU® 500  exam consists of 50 multiple-choice questions and you only have 65 minutes to complete the exam. That means, you only have about 1 minute and 18 seconds per exam question. That’s not a lot of time. You need to memorize all of the content of this exam to be able to quickly read, analyze, and correctly answer each scenario-based question.

CPCU® 500 Sample Exam Questions (First Sample Question)

Which of the following describes market risk?

  1. The price of a Model T Television has increased 3% since last year.
  2. Garry chooses not to invest in a treasury bond due to the uncertainty of the current interest rate level.
  3. Lance invests in new construction equipment for his company, but he is unable to sell the equipment after three years of use.
  4. Barry purchases stock for $100 and sells the stock in two years for $95.

Answer: D – Barry purchases stock for $100 and sells the stock in two years for $95.

As you can see, the CPCU® 500 exam will not ask for you to define anything (as is common in a college exam). Instead, it will ask you a question regarding that definition. This means you must fully understand the definition and fully understand how this definition is applied, meaning you must know “what is market risk”, “what is an example of market risk”, and “how is market risk applied”.

The answer is D. Market risk is the risk that the price of stocks and bonds will fluctuate. In this case, Barry’s stock fluctuated in value because the stock value decreased. In a typical college exam, you might expect this question to ask “What is market risk?”, with the answer being “Market risk is the risk that the price of stocks and bonds will fluctuate”. The CPCU® exams will rarely format a question in this manner. You should always expect for the question and answers to be formatted using real-life scenarios, often providing 2 or 3 partially correct answers and one BEST answer

For more concept questions, download our free CPCU® 500 practice exam.

CPCU® 500 Sample Exam Questions (Second Sample Question)

James is reviewing his company’s balance sheet. The balance sheet shows that James’ company holds current assets of $5 million and total assets of $20 million. The remainder of the balance sheet shows current liabilities of $7.5 million, noncurrent liabilities of $1.25 million, and owners’ equity of $11 million. This company’s financial position is best described by which one of the following?

  1. This company has poor liquidity and a low leverage ratio.
  2. This company has poor liquidity and a high leverage ratio.
  3. This company is extremely liquid and has a high leverage ratio.
  4. This company is extremely liquid and has a low leverage ratio.

Answer: B – This company has poor liquidity and a high leverage ratio.

A case question will give you a scenario like the one seen above; you will be required to select the correct answer based on the given scenario. For a scenario question, you must fully understand what is being asked in this scenario and fully understand how to apply the information you have learned from studying.

In this example, you are given a lot of information, some of which is useful to the scenario and some of which is only there to confuse you. In this case, you must know:

  • What are the liquidity ratios and which ratio should be used?
  • What are the leverage ratios and which ratio should be used?
  • What formulas are needed to answer this scenario question?
  • What is considered a good or bad ratio?

There are two leverage ratios: Debt-to-assets ratio and debt-to-equity ratio

There are three liquidity ratios: Acid-test ratio, current ratio, and working capital

In this case, based on the numbers given in this scenario, you should use the Debt-to-Assets Ratio to calculate leverage and the Current Ratio to calculate liquidity.

Debt-to-Assets Ratio = Total Liabilities ÷ Total Assets

  • Debt-to-Assets Ratio = $20 million ÷ ($7.5 +$1.25)
  • Debt-to-Assets Ratio = 2.29

Current Ratio = Current Assets ÷ Current Liabilities

  • Current Ratio = $5 million ÷ $7.5 million
  • Current Ratio = 0.667

A current ratio greater than 1.0 indicates that the company’s current assets exceed its current liabilities, meaning the company is able to pay its immediate liabilities. When comparing current ratios, the company with the higher ratio is better suited to pay its current liabilities.

A high debt-to-assets ratio is an indication that the company is heavily financially leveraged. This means the company has financed the majority of its asset purchases using debt. A higher debt-to-assets ratio indicates that the company is at greater risk of bankruptcy if the company is unable to repay its debt. A debt-to-assets ratio lower than 0.5 indicates that the company is financed primarily by shareholder-invested capital.

In this case, we can conclude that the answer is B because a Debt-to-Assets Ratio of 2.29 (a high ratio) and a Current Ratio of 0.667 (a low ratio) this company has poor liquidity and a high leverage ratio.

These questions are tricky and will require a LOT of critical thinking and question analysis. For more case questions, download our free CPCU® 500 practice exam.

CPCU® 500 Exam – Online Course

Ready to start studying? We are ready to help.

Stop wasting your time. You no longer need to study for 8 weeks to pass your exam (the industry-recommended study time). With our streamlined online course, students pass their exams, on average, in 2 weeks by studying just 1 hour per day. Start your studying today with our CPCU® 500 Full Course (guaranteed to pass or your money back).

Or, if you just need a little extra practice before your exam, check out our CPCU® 500 Practice Exam Course (300+ practice questions).

Free Practice Exam

Ready to get started studying? We’re here to help (for free). Download our free CPCU® 500 practice exams to get a feel for the type of questions you will see on the exam.

Download: Free Practice Exam (CPCU® | ARM™ | AINS™ | API™)

More Information

For more information about the CPCU® 500 exam, check out some of our other free resources:

Disclaimer

Remember, every CPCU® exam is different. No single exam is the same. Be sure to study ALL topics (not just our recommendation). This resource is intended to provide you with a general idea of where your focus should be. Make sure to thoroughly study every topic of this exam.

Difficulty rank and importance rank are solely the opinion of AssociatePI. This resource is intended to provide you with a general idea of where your focus should be. Each exam administered by The Institutes is different. AssociatePI is not affiliated with The Institutes or involved in the exam writing process. Please be sure to thoroughly study every chapter and every topic of this course.

CPCU® exams are administered by the American Institute for Chartered Property Casualty Underwriters (“The Institutes”). AssociatePI does not administer the actual exams, we are an independent resource of free content, advice, and study material for professional insurance education. This blog is intended for informational purposes only, to inform prospective students of the benefit of the CPCU® designation.

CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”). AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources related to the Institutes’ designations or other programs.

For further information, please email contact@associatepi.com.

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