Exam DISC-RM Practice Question 462
Study guide: Exam DISC-RM
Two of a company's exposures can each produce an annual loss anywhere from $0 to $1,000,000. For Exposure X a loss of $1,000,000 has a probability of 0.001 a year; for Exposure Y it has a probability of 0.10. A junior analyst reports that the two exposures are equally risky because their ranges are equal. Which statement best evaluates the analyst's conclusion?
- A) It is unsound, because the range ignores how likely the extreme outcomes are
- B) It is sound, because the range measures the worst-case spread of outcomes
- C) It is unsound, because Exposure X has the larger range once probabilities apply
- D) It is sound, because equal ranges imply equal standard deviations
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