A firm has the following probability distribution for annual losses causes by work place injury:

Loss AmountProbability$00.75$1,0000.20$5,0000.05

The firm is considering three Risk Management options:

1. Retention
2. Deductible Insurance > Face amount = $5,000; Deductible = $250; Premium = $500
3. Full Insurance > Face amount = $5,000; Premium = $1,000

PartA:

Derive the loss matrix forthe firm.Make sure you show loss in the top row and out-of-pocket costs in the bottom row in each cell of the loss matrix.

Part B:

What is theExpected Costof each option?If the risk manager's decision rule is to minimizeExpectedCost, which option will she choose?Show all of your work and calculations.