A firm has an investment project that will cost the firm $30 million but will generate $2 million of NPV. Also there is a 5% chance that the firm will lose a lawsuit to employees, and be forced to pay damage of $30 million. Suppose that a liability insurance policy with a $30 million limit has a premium equal to $1.5 million.

Compute expected claim cost

Compute the amount of loading on the policy

Compute the expected cost of not pursuing this project

Should the firm purchase this insurance or not? Why or why not?

There is a portfolio whose current value is $2 million. Its daily return is normally distributed with a mean of 2% and a standard deviation of 0.7.

Compute the daily 99% and 95% VaRs of a portfolio

Interpret the results

A firm has an investment project that will cost the firm $30 million but will generate $2 million of NPV. Also there is a 5% chance that the firm will lose a lawsuit to employees, and be forced to pay damage of $30 million. Suppose that a liability insurance policy with a $30 million limit has a premium equal to $1.5 million.

Compute expected claim cost

Compute the amount of loading on the policy

Compute the expected cost of not pursuing this project

Should the firm purchase this insurance or not? Why or why not?

There is a portfolio whose current value is $2 million. Its daily return is normally distributed with a mean of 2% and a standard deviation of 0.7.

Compute the daily 99% and 95% VaRs of a portfolio

Interpret the results