Out put area:a. Insurance premium-b. Insurance premium -You would pay -

X V & A B C D E F G H Insurance 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? 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? Input Area: Cost of building Probability of loss Interest rate b. Probability of loss