You are the risk manager at XYZ construction company. Based on a variety of industry parameters and historical incident rates of on the job accidents at your firm, the probability and amount of a potential loss next year has been determined to her. At the suggestion of a workplace safety consultant you hired, XYZ could implement new safety policies and reduce the chance of the potential loss identified above. Details regarding the new safety policies are as follows: , it can reduce the chance of this loss to 3%, but the new safety policies have an upfront cost of $250,000. Suppose that the beta of the loss is 0 and the risk-free rate of interest is 5%. 1. If XYZ has no insurance, what is the net present value of implementing the safety policies recommended by the 2. How much would XYZ be willing to pay to fully insure for the potential loss (before implementing the new safety nolirinot? 2 morlet 3. You realize that fully insuring for the potential loss gives no incentive to adopting the new safety policies. So you come up with the idea that XYZ can save on insurance by having a deductible that would be paid in the event of a loss. What deductible amount would give incentive to implement the new safety policies? Hint: NPV of implementing the new safety policies would need to be positive. ( 3 marks) You are the risk manager at XYZ construction company. Based on a variety of industry parameters and historical incident rates of on the job accidents at your firm, the probability and amount of a potential loss next year has been determined to her. At the suggestion of a workplace safety consultant you hired, XYZ could implement new safety policies and reduce the chance of the potential loss identified above. Details regarding the new safety policies are as follows: , it can reduce the chance of this loss to 3%, but the new safety policies have an upfront cost of $250,000. Suppose that the beta of the loss is 0 and the risk-free rate of interest is 5%. 1. If XYZ has no insurance, what is the net present value of implementing the safety policies recommended by the 2. How much would XYZ be willing to pay to fully insure for the potential loss (before implementing the new safety nolirinot? 2 morlet 3. You realize that fully insuring for the potential loss gives no incentive to adopting the new safety policies. So you come up with the idea that XYZ can save on insurance by having a deductible that would be paid in the event of a loss. What deductible amount would give incentive to implement the new safety policies? Hint: NPV of implementing the new safety policies would need to be positive. ( 3 marks)