risk management

Please show your work for each problem or you will not receive credit. Please bold/make clear your final answer. 1. Assume a firm owns a small warehouse. The warehouse is subject to the risk of a fire. Below is the probability distribution for losses: The firm has five current risk management options it can use to manage this risk: [1] Retention [2] Insurance policy with a FA of $50,000, a premium of $7,500. [3] Insurance policy with a face amount (FA) of $30,000, a premium cost of $4,500. Also implement a loss prevention program that costs $1,500 and changes the probability of a $0 loss to 87%,$25,000 to 6%,$50,000 to 4%,$75,000 to 2% and $100,000 to 1% [4] Insurance policy with a face amount (FA) of $75,000 with a premium cost of $10,000 [5] Insurance of $100,000 with a premium cost of $12,000. a. Construct a loss matrix. What is the expected cost for each option? (4 points each) b. Assume that the risk manager makes decisions based on total cost, Show what conditions on the WVs (Worry Value) would make full insurance (Option 5) preferred to retention (Option 1) (4 points) Please show your work for each problem or you will not receive credit. Please bold/make clear your final answer. 1. Assume a firm owns a small warehouse. The warehouse is subject to the risk of a fire. Below is the probability distribution for losses: The firm has five current risk management options it can use to manage this risk: [1] Retention [2] Insurance policy with a FA of $50,000, a premium of $7,500. [3] Insurance policy with a face amount (FA) of $30,000, a premium cost of $4,500. Also implement a loss prevention program that costs $1,500 and changes the probability of a $0 loss to 87%,$25,000 to 6%,$50,000 to 4%,$75,000 to 2% and $100,000 to 1% [4] Insurance policy with a face amount (FA) of $75,000 with a premium cost of $10,000 [5] Insurance of $100,000 with a premium cost of $12,000. a. Construct a loss matrix. What is the expected cost for each option? (4 points each) b. Assume that the risk manager makes decisions based on total cost, Show what conditions on the WVs (Worry Value) would make full insurance (Option 5) preferred to retention (Option 1) (4 points)