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?

---

Definitions:

Esophagus

A muscular tube that connects the throat to the stomach, transporting swallowed food and liquids.

Throat

The anterior part of the neck, housing the pharynx and vocal cords, and leading to the esophagus and larynx.

Pharynx

The muscular tube that connects the mouth and nasal passages with the esophagus and larynx, serving both respiratory and digestive functions.

Esophagus

The muscular tube connecting the throat (pharynx) with the stomach, responsible for moving swallowed foods and liquids.