In calculating insurance premiums, the actuarially fair insurance premium is the premium that results in a zero NPV for both the insured and the insurer. As such, the present value of the expected loss is the actuarially fair insurance premium. Suppose your company wants to insure a building worth $245 million. The probability of loss is 1.25 percent in one year, and the relevant discount rate is 4 percent. a. What is the actuarially fair insurance premium? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89). b. Suppose that you can make modifications to the building that will reduce the probability of a loss to .90 percent. How much would you be willing to pay for these modifications? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16). a. Insurance premium b. Maximum cost Suppose you purchase a March 2017 cocoa futures contract on February 10, 2017, at the last price of the day. Use Table 23.1. What will your profit or loss be if cocoa prices turn out to be $1,965 per metric ton at expiration? (Do not round intermediate calculations. Enter your answer as a positive value and round your answer to 2 decimal places, e.g., 32.16.) 121 PM Mon Oct 28 32% ezto-cf-media m education.com 9,388 947-50 972.50 -8.00 -8.50 2,516 443-50 455.25 11.00 11.75 179,982 137,497 451.25 475.00 9.25 8.50 71,740 69.377 568.50 566.50 11.00 9.25 24.788 29,537 123.625 124.050 1.325 1.075 19,575 10,511 March 953.00 960.50 942.00 May 978.50 984-50 968.00 Wheat (CBT)-5,000 bu.; cents per bu. March 430.50 444.00 429-50 May 442.00 455-50 A 440.75 Wheat (KC)-5,000 bu; cents per bu. March 440.25 451.75 438.25 July 465-25 475-25 462.75 Wheat (MPLS)-5,000 bu; cents per bu. March 557.50 569.50 556.00 May 556.75 567.00 555-50 Cattle-Feeder (CME)-50,000 lbs., cents per lb. March 122.525 123.800 121.900 April 123.250 124.200 122.450 Cattle-Live (CME)-40,000 lbs; cents per lb. Feb 117.250 117.750 116.775 April 115.000 115.175 114.125 Hogs-Lean (CME)-40,000 lbs, cents per lb. Feb 73.900 74.500 A 73-550 April 72.125 72.250 70.625 Lumber (CME)-110.000 bd. ft., $ per 1,000 bd. ft. March 381.70 381.70 A 373.80 May 379.60 381.70 A 375.90 Milk (CME)-200,000 lbs., cents per lb. Feb 16.87 16.89 16.79 March 16.91 17.03 16.73 Cocoa (ICE-US)-10 metric tons; $ per ton. March 1,993 2,018 1,969 May 2,008 2,038 1,988 Coffee (ICE-US)-37.500 lbs, cents per lb. 117.650 114.825 .875 .075 17,410 144.593 74.225 70.775 875 -950 14,671 104,603 375.40 378.40 3.50 2.60 2,698 1,541 16.85 16.97 4,180 4.392 .03 1,974 1,996 -19 -15 35,455 105,293 March 143.40 145.70 142.85 145.20 2.30 43,558
