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As the owner of a concession booth in a major airport, you decide to purchase insurance that will pay $2,500,000 in the event the airport
As the owner of a concession booth in a major airport, you decide to purchase insurance that will pay $2,500,000 in the event the airport terminal is destroyed by terrorists. Suppose the likelihood of such a loss is 20%, the risk-free interest rate is 4%, and the expected return of the market is 12%. If the risk has a beta of -2.0, what is the actuarially fair insurance premium?
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