Each has unique-event risk and probability of super-even

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Walsh Construction is considering two options for its supplier portfolio. Option 1 uses two local suppliers. Each has a "unique-event" risk of 8%, and the probability of a "super-even" that would disable both at the same time is estimated to be 2.5%. Option 2 uses two suppliers located in different countries. Each has a "unique-event" risk of 18%, and the probability of a "super-event" that would disable both at the same time is estimated to be 1.2%.

(a) What is the probability that both suppliers will be disrupted using option 1?

(b) What is the probability that both suppliers will be disrupted using option 2?

Reference no: EM131743799

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