An Operator of an Oil Well Has a 0

question 78

Multiple Choice

An operator of an oil well has a 0.5% chance of experiencing a catastrophic failure.This failure will cost the operator $500 million.If the risk-free rate is 2%,the expected return on the market is 8%,and the beta of the risk is 0,what is the actuarially fair insurance premium?

• A)$2,450,980
• B)$2,500,000
• C)$2,550,000
• D)$2,314,815
• E)$2,715,225

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Definitions:

Conversion Factors

Multipliers used to convert a quantity expressed in one set of units to an equivalent expressed in another.

Seconds

A unit of time equivalent to one-sixtieth of a minute.

Hours

A unit of time equivalent to 60 minutes or 3600 seconds, used to measure the duration of events.

Psychoanalytic Perspective

A theory of psychology and psychotherapy developed by Sigmund Freud that emphasizes the importance of unconscious processes and childhood experiences in shaping behavior and personality.