Question: Lets use the following formula to define objective risk factor. 1/(square root of number of homes insured) For example 100 homes insured against fire. Objective

Lets use the following formula to define objective risk factor.

1/(square root of number of homes insured)

For example

100 homes insured against fire.

Objective risk factor would be 1/(square root of 100)

Objective risk = (1/10)

Objective risk factor = .1 or 10%.

This means that expected losses and actual losses are expected to differ by 10%.

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The objective risk factor of a fire insurance portfolio composed of 1 million homes is 100 times less than a portfolio of 100 similar homes.

True

False

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