Show ALL of your work to receive full credit for an answer. 1. Kramerica Company has a small plant worth $9,000. The plant is subject to physical damages and total destruction as a result of fire. From over 20,000 industry observations, the firm has derived the following probability distribution of fire losses for its physical plant. Loss Amount ($) Probability of Loss

0	0.85
4,000	0.08
6,000	?
9,000	0.03

Kramerica is considering the following risk management options: [1] Retention [2] Partial insurance Coverage Face Amount = $7,000; Premium = $640 [3] Deductible insurance Coverage Face Amount = $9,000; Premium = $550 Deductible per occurrence = $2,000 [4] Full insurance Coverage Face Amount = $9,000; Premium = $900 a. Construct the loss matrix from Kramericas perspective. Make sure you show loss in the top row and out-of-pocket cost in the bottom row in each cell of the loss matric. [6 points] b. What is the AFP for deductible insurance in this case? Show all work. [3 points] c. Assume that the companys decision rule is to pick the option that minimizes TOTAL EXPECTED COST. Can you identify what risk management option is chosen? Why or why not? Make sure that you show all calculations, clearly define EXPCTED COST formula in each case and consider the worry value. [4 points] d. Assume that the companys decision rule is to pick the option that minimizes TOTAL EXPECTED COST, what worry value(s) would make deductible insurance preferred to full insurance? Show all work and calculations and explain your numerical answer. [3 point]