How much would you be willing to pay for the modifications

Reference no: EM131953109

Question: 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 $490 million. The probability of loss is 1.42 percent in one year, and the relevant discount rate is 2.5 percent.

a. What is the actuarially fair insurance premium? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the nearest whole dollar amount, e.g., 32.)

Insurance premium $

b. Suppose that you can make modifications to the building that will reduce the probability of a loss to .85 percent. How much would you be willing to pay for these modifications? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.)

Maximum payment $

Reference no: EM131953109

Questions Cloud

Calculate the value of a six-month futures contract : Calculate the value of a six-month futures contract on a Treasury bond. You have the following information: (Do not round intermediate calculations).

Understand by term market efficiency are markets efficient : What do you understand by the term market efficiency are markets efficient?

What are the total costs for the year : Suppose NSI incurs fixed costs of $195,000 during a year in which total production is 215,000 units. What are the total costs for the year?

Calculate the yield to maturity on the bonds : Calculate the yield to maturity on the following bonds. A 9.1 percent coupon (paid semiannually) bond, with a $1,000 face value and 16 years remaining.

How much would you be willing to pay for the modifications : Suppose that you can make modifications to the building that will reduce the probability of a loss to .85 percent. How much would you be willing to pay.

What is the pretax cost of debt : Calculating Cost of Equity The Dybvig Corporation's common stock has a beta of 1.21. If the risk- free rate is 3.5 percent and the expected return on the market

Reviewing company performance : Top managers of Bayside Inns are reviewing company performance for 2016.

Calculate book value of the existing laser checking system : Calculating initial investment Miller Dental, Inc. is considering replacing its existing laser checking system, which was purchased 3 years ago.

What was the percentage increase per year : Calculating Interest Rates and Future Values [LO1, 3] In 1895, the first U.S. Open Golf Championship was held. The winner's prize money was $150.

User Account

All Pages