Financial Risk Manager Part 1

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For a certain insured, the probability of making no claim during a policy period is 0.60. The probability of making only 1 claim is 0.25. What is the probability that this insured makes more than 1 claim during the policy period?

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Explanation:

Explanation

The probability of "more than 1 claim" is the complement of "no more than 1 claim" (which means 0 or 1 claim).

Given:

P(0 claims) = 0.60
P(1 claim) = 0.25

First, calculate the probability of no more than 1 claim: P(0 or 1 claim) = P(0 claims) + P(1 claim) = 0.60 + 0.25 = 0.85

Then, the probability of more than 1 claim is the complement: P(more than 1 claim) = 1 - P(0 or 1 claim) = 1 - 0.85 = 0.15

Therefore, the correct answer is A. 0.15.

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