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A firm owns a building worth $ 1 0 0 , 0 0 0 Insurance on the building will cost $ 1 0 , 0

A firm owns a building worth $100,000
Insurance on the building will cost $10,000
Expected losses per year $5,000
The return on a liquid reserve =5%
The average return on funds applied to operations =12%
What is the cost of retaining risk?

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