Use the Information for the Question(s)below

question 30

Essay

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%.
-Assuming that your firm will purchase insurance,what is the minimum-size deductible that would leave your firm with an incentive to implement the new safety policies?

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Definitions:

Special Precautions

Additional safety measures or steps taken in specific situations to prevent harm or mitigate risk beyond what is normally required.

Direct Liability

Direct liability refers to a legal responsibility that arises from one's own actions or failures to act, leading directly to harm or damage.

Respondeat Superior

A judicial principle that assigns legal liability to an employer or principal for the wrongful actions performed by an employee or agent, providing these actions happened in the course of their employment or representation.

Vicarious Liability

A legal principle where one party is held responsible for the actions or omissions of another, such as an employer for the actions of an employee.