1) Suppose in a firm, the probability of worker injury is = 1/20. The losses from an injury is $100,000. Suppose the cost of residual uncertainty is $3,000 and the cost from other elements of cost of risk is zero. The value of firm without risk is $2 million. What is the value of the firm providing given information?
2) Suppose the firm purchases a full insurance, costing $7,000. What is the value of the firm?
3) Greater American Insurance Group underwrites the property risk from Buckeye Brewery. The policy involves a deductible of $300,000. The premium that Greater American charges is $50,000. Is this premium actuarially fair? Justify your answer with the calculation