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)