CPCU® 540 Exam Questions

The CPCU® 540 exam questions are heavily math intensive. The CPCU® 540 exam consists of 85 multiple choice questions broken up into two sections, part A and part B.

  • Part A: Concept questions – The first section of the exam will be approximately 60 concept questions; these questions will test your understanding of a definition, topic, or formula. The multiple-choice answers will generally provide 2 or 3 partially correct answers and one “best” answer.
  • Part B: Case questions – The second section of the exam will be approximately 25 case questions; these questions will require you to apply your knowledge to a specific scenario or event. You will be given a real-life scenario; your job will be to select the best recommendation to solve the given scenario.

In this blog we will break down a sample question from part A and a sample question from part B. We will detail exactly how to solve each type of problem and provide some insight into the type of questions you will see on the CPCU® 540 exam. These questions are taken directly from our CPCU® 540 online course, the questions are designed to mimic the format and feel of the actual exam.

CPCU® 540 Sample Exam Questions – Part A

Joe, an analyst for XYZ Company, is attempting to compare two very different companies to determine the best investment. To compare the asset holdings of the two companies Joe divides each company’s assets by its respective sales. This allows Joe to equally compare the two companies. This is an example of what?

  1. Vertical analysis
  2. Ratio analysis
  3. Trend analysis
  4. Comparative analysis

    

Answer: A – Vertical analysis

A concept question will not directly ask you to define anything, it will instead ask you a question in regards to a definition. This means you must fully understand the definition, fully understand all minor details about the definition and fully understand how this definition is applied, meaning you must know “what analysis would divide a company’s assets by sales for analysis?”.

The answer is A) because a vertical analysis uses a common size statement to view the relationship between items within a single set of financial statements. The common size statement reports each line within the financial statement as a percentage of a base figure.  In this case, Joe is comparing assets as a percentage of sales.

Notice in this example you must infer from the question that Joe is using a common size statement. The question does not necessarily state that Joes is using a common size statement but you must be able to infer from the question that Joe is dividing the company’s assets by its respective sales meaning Joe must be creating a common size statement, vertical analysis uses a common size statement meaning Joe is performing a vertical analysis.

For more concept questions, check out our CPCU® 540 practice exam.

CPCU® 540 Sample Exam Questions – Part B

ABC Company is paying $10,000 a month, at the beginning of each month, to lease a warehouse for one year. ABC is interested in making a one-time payment to pay off the entire one-year lease. Assuming an annual interest rate of 12% could be earned, how much would it cost ABC to pay off the entire one-year lease today?

  1. $112,550
  2. $126,825
  3. $120,000
  4. $113,676

 

Answer: D – $113,676

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, fully understand what formula needs to be applied, and fully understand how to apply the formula.

In this case the answer is D) ABC would need to pay $113,677 as a one-time payment for the yearlong lease. To calculate this, we calculate the present value of an annuity due, because ABC is making payments at the beginning of each payment period. You should use the PV of an annuity table to calculate this, if you do not have a present value table you can download the FV and PV tables (along with a free practice exam) by clicking here.

Case facts: 12 periods, $10,000 payment, 1% interest

Calculations: PV annuity due = PV ordinary annuity x (1+ r)

Step 1) Calculate present value ordinary annuity = $10,000 x 11.255 = $112,550

Step 2) Calculate present value of annuity due = $112,550 x (1 + 0.01) = $113,676

These questions are tricky and will require a bit of critical thinking and question analysis. Notice in this example you must infer from the scenario that this question must be solved using the present value of an annuity due formula. The question does not specifically ask you to calculate the present value of an annuity due, you must know based on the case facts that:

  • Periodic payments are being made (meaning this is an annuity)
  • Payments are made at the beginning of the period (meaning it is an annuity due)
  • We want to calculate the present-day payment needed to pay off the lease (meaning we need to calculate present value)

For more case and formulas based questions, check out our CPCU® 540 practice exam.

Free Practice Exam

Ready to get started studying? We’re here to help (for free). Download our free CPCU® 540 practice exam to get a feel for the type of questions you will see on the exam. This includes the formulas and present/future value tables for your exam.

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

More Information

For more information about the CPCU® 540 exam, checkout 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, importance rank, and the advice provided in this resource 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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