Please show your work for each problem or you will not receive credit. Please bold$/$make clear your

final answer.

Temple owns a small warehouse on campus where they store vehicles. The warehouse is subject

to the risk of a fire. Below is the probability distribution for losses:

The firm has four current risk management options it can use to manage this risk. Construct a

loss matrix. What is the expected cost for each option? $(4$ points each$)$

A$.$ Insurance of $$150,000$ with a premium cost of $$11,000.$

B$.$ Insurance policy with a face amount $($FA$)$ of $$25,000,$ a premium cost of $$4,500.$ Also

implement a loss prevention program that costs $$2,000$ and changes the probability of a

$$0$ loss to $91\%,$$$25,000$ to $6\%,$$$70,000$ to $2\%,$$$100,000$ to $1\%$ and $$150,000$ to $0\%$

C$.$ Insurance policy with a FA of $$50,000,$ a premium of $$7,000.$

D$.$ Retention

Assume that the risk manager in the above example makes decisions based on total cost, do a

comparison where you show what conditions on the WVs $($Worry Value$)$ would make Option

A preferred to retention Option D $(4$ points$)$