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 factor = (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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What is the objective risk factor if the portfolio of insured homes is 1,000.

	A.	1%
	B.	3.16%
	C.	4.12%
	D.	5%