Use the Information for the Question(s)below

question 1

Multiple Choice

Use the information for the question(s) below.
Your firm faces an 8% chance of a potential loss of $50 million next year.If your firm implements new safety policies,it can reduce the chance of this loss to 3%,but the new safety policies have an upfront cost of $250,000.Suppose that the beta of the loss is 0 and the risk-free rate of interest is 5%.
-If your firm is fully insured,the NPV of implementing the new safety policies is closest to:

• A)$2.15 million.
• B)$2.5 million.
• C)$2.25 million.
• D)-$0.25 million.

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Definitions:

Consumer Credit

Types of personal loans extended to consumers for purchasing goods and services, including credit cards and installment loans.

Courtesy Credit

A small amount of credit provided by a financial institution as a gesture of goodwill, often to rectify a minor bank error or accommodate customer inconvenience without formal claims.

Overpricing

Setting the price of a product or service higher than its perceived market value or cost justification, potentially leading to reduced sales or customer dissatisfaction.

Target-Return Pricing

A pricing strategy where the price is set to achieve a specified return on investment or cost.