You have just completed your corporate risk review and have identified a risk which is not...

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You have just completed your corporate risk review and have identified a risk which is not fully diversifiable. Taking into account process and procedural mitigation efforts; you note you still expect to purchase insurance. Working with your broker you have been offered the following insurance policy to consider. This is contingent upon the insurer finalizing its assessment of the organization. Prepare your evaluation as to what the premium will be and what the NPV benefit of the insurance is expected to be. Property loss: Distress costs Probability of loss: Risk free rate: Beta: Market returns $175,000,000 $25,000,000 1% 4% -3 12% a) Insurance premium. b) Net present value (NPV) of the insurance? c) Briefly list four steps that the insurance company may be still considering managing their exposure. You have just completed your corporate risk review and have identified a risk which is not fully diversifiable. Taking into account process and procedural mitigation efforts; you note you still expect to purchase insurance. Working with your broker you have been offered the following insurance policy to consider. This is contingent upon the insurer finalizing its assessment of the organization. Prepare your evaluation as to what the premium will be and what the NPV benefit of the insurance is expected to be. Property loss: Distress costs Probability of loss: Risk free rate: Beta: Market returns $175,000,000 $25,000,000 1% 4% -3 12% a) Insurance premium. b) Net present value (NPV) of the insurance? c) Briefly list four steps that the insurance company may be still considering managing their exposure.

Answer rating: 100% (QA)

a The insurance premium can be calculated using the Capital Asset Pricing Model CAPM formula textPre... View the full answer