1. Assume a firm owns a small warehouse. The warehouse is subject to the risk of a fire. Below is the probability distribution for losses: Loss ($) P(Loss) 0 0.70 4,500 0.15 8,250 0.08 9,900 0.05 12,000 0.02 [3] Insurance of $12,000 with a premium cost of $2,400. [4] Insurance policy with a FA of $12,000, a premium of $2,000, and a deductible of 400. This option has a worry value of $60. a. Construct a loss matrix. What is the expected cost for each option? (4 points each) b. Assume that the risk manager makes decisions based on total cost. What option would she choose? (2 points) 1. Assume a firm owns a small warehouse. The warehouse is subject to the risk of a fire. Below is the probability distribution for losses: Loss ($) P(Loss) 0 0.70 4,500 0.15 8,250 0.08 9,900 0.05 12,000 0.02 [3] Insurance of $12,000 with a premium cost of $2,400. [4] Insurance policy with a FA of $12,000, a premium of $2,000, and a deductible of 400. This option has a worry value of $60. a. Construct a loss matrix. What is the expected cost for each option? (4 points each) b. Assume that the risk manager makes decisions based on total cost. What option would she choose? (2 points)