What is the actuarially fair insurance premium

Assignment Help Financial Management

Reference no: EM131880756

Genentech's main facility is located in South San Francisco. Suppose that Genentech would experience a direct loss of $550 million in the event of a major earthquake disrupting its operations. The chance of such an earthquake is 2.0 % per? year, with a beta of negative 0.40.

a. If the? risk-free interest rate is 6.0 %?, and the expected return of the market is 10.5 %?, what is the actuarially fair insurance premium to cover? Genentech's loss?

The actuarially fair insurance premium to cover? Genentech's loss is ?$ _________________ million. ? (Round to two decimal? places.)

b. Suppose the insurance company raises the premium by an additional 8 % over the amount calculated in part ?(a?) to cover its administrative and overhead costs. What amount of financial distress or issuance costs would Genentech have to suffer if it were not insured to justify purchasing the? insurance?

The amount of financial distress or issuance costs is ?$ ____________ million. ? (Round to two decimal? places.)

Reference no: EM131880756

Questions Cloud

Find the price for a call option with the inputs : Use the Black-Scholes Model to find the price for a call option with the following inputs:

Describe the fundamental components of a distributed system : Describe the fundamental components of a distributed system. Compare and contrast advantages and disadvantages of at least 2 distributed system architectures.

Loan amount on mortgages for a particular zip code : Suppose that the loan amount on mortgages for a particular zip code is normally distributed with a mean of 154,449, measured in dollars

What is the probability that a loan will have : What is the probability that a loan will have a z-score of less than -1.5? Answer to at least four decimal places.

What is the actuarially fair insurance premium : what is the actuarially fair insurance premium to cover? Genentech's loss?

How would the balance sheet be written : On 1/1/2015 starburst company issed 10 year bond witha face value of $500,000 at 102. The bonds carry a stated inerestet rate of 7% with interest payable.

Discuss how the products can be used in building the network : Discuss how those products can be used in building the network within an organization with respect to the advantages and disadvantages of each one.

Discuss about the understanding the foreign policy : Discuss the professional and/or real -world backdrop to the material reviewed, its relevance to and significance for the issues it address.

Prepare fund financial statements for general fund : Prepare fund financial statements for General Fund, Special Revenue Fund and Capital Projects Fund.

User Account

All Pages