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: 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 Cost of building Probability of loss Interest rate b. Probability of loss Output Area: a. Insurance premium b. Insurance premium You would pay