Farmville Industries Is a Major Agricultural Firm and Is Concerned

question 24

Essay

Farmville Industries is a major agricultural firm and is concerned about the possibility of drought impacting corn production.In the event of a drought,Farmville Industries anticipates a loss of $75 million.Suppose the likelihood of a drought is 10% per year,and the beta associated with such a loss is 0.4.If the risk-free interest rate is 5% and the expected return on the market is 10%,then what is the actuarially fair insurance premium?

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Definitions:

Horizontal Mergers

Horizontal mergers are business consolidations that occur between companies operating in the same industry, often resulting in a stronger competitive entity.

Conglomerates

Large corporations that consist of diverse companies or divisions operating in various industries or sectors, usually as a result of mergers or acquisitions.

Antitrust Enforcement

Government actions aimed at promoting competition among businesses by preventing monopolies, cartels, and other practices that restrict free trade.

Blurred Distinction

A situation where the clear differentiation between two concepts, categories, or objects becomes vague or ambiguous.