A firm has the following probability distribution for annual losses due to vandalism: Annual Losses Probability $0 .70 $10,000 .20 $50,000 .10 The firm is considering three options: 1. Retention 2. Deductible insurance, Face amount= $50,000, Deductible: $1,000, Premium = $6,000 3. Full insurance, Face amount: $50,000, Deductible: $0, Premium=$10,000 a. Derive the Loss Matrix for the firm. (4 points) b. If the risk manager's decision rule is to minimize expected cost, which option will she choose? What is the expected cost of each option? Show your work and calculations. (3 points) c. Calculate the actuarially fair premium for full insurance in this example. (2 points) d. What worry values for retention would make the full insurance alternative preferable to retention? Show your work and calculations. Explain your numerical answer. (2 points) HTML Editon