Question: QUESTION 4 Use the follwing information to answer Questions 4 - 6. Suppose a company has a building worth $295 million. Because it is located
QUESTION 4
Use the follwing information to answer Questions 4 - 6.
Suppose a company has a building worth $295 million. Because it is located in a high-risk area for natural disasters, the probability of a total loss in any particular is 1.25%. What is your company's expected loss per year on this building?
| a. | $3,545,673 | |
| b. | $3,992,788 | |
| c. | $3,687,500 | |
| d. | $3,507,500 |
QUESTION 5
Suppose the relevant discount rate is 4%, what is the actuarially fair insurance premium?
| a. | $3,372,596 | |
| b. | $3,507,500 | |
| c. | $3,687,500 | |
| d. | $3,545,673 |
QUESTION 6
Suppose that you can make modifications to the building that will reduce the probability of a loss to 0.9%. How much would you be willing to pay for these modifications?
| a. | $2,552,885 | |
| b. | $992,788 | |
| c. | $2,639,423 | |
| d. | $733,173 |
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