Financial Risk Manager Part 1
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For a certain insured, the probability of making no claim during a policy period is .60. The probability of making 1 claim is .25. What is the probability that this insured makes more than 1 claim during the policy period?
Other
Community
NNikitesh
A
0.15
B
0.25
C
0.35
D
0.6
Explanation:
The probability of making more than 1 claim is the complement of making no more than 1 claim (which includes 0 claims and 1 claim).
Step-by-step calculation:
- Probability of 0 claims = 0.60
- Probability of 1 claim = 0.25
- Probability of 0 or 1 claim = 0.60 + 0.25 = 0.85
- Probability of more than 1 claim = 1 - 0.85 = 0.15
Alternative approach: Since the sum of all probabilities must equal 1, and we have probabilities for 0 claims (0.60) and 1 claim (0.25), the remaining probability for 2 or more claims is: 1 - (0.60 + 0.25) = 1 - 0.85 = 0.15
This matches the complement rule approach: P(more than 1) = 1 - P(0 or 1) = 1 - 0.85 = 0.15
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