Assume that you are the risk manager of an organization that owns a warehouse that is valued at $500,000. The following is the loss distribution associated with the possibility of a steamboiler explosion at your warehouse. Further assume that you think the dollar value of the maximum probable loss to a building as a result of a steam-boiler explosion is $400,000, but your assistant estimates it to be $300,000. You both agree that the maximum possible loss is the complete destruction of the building.

Dollar AmountProbability

1-9,0000.9

10,000-50,0000.06

50,001-100,0000.03

100,001-300,0000.008

300,001-400,0000.0015

400,001-500,0000.0005

1.00

Specifically, how is the maximum probable loss related to risk tolerance level? Support your answer by explaining why your estimates of the maximum probable loss differ from that of your assistant.