A Restaurant Decides to Insure Itself Against the Risk of Fire.The

question 103

Multiple Choice

A restaurant decides to insure itself against the risk of fire.The insurance company estimates that the probability of a fire is 0.1% and the expected payment should a fire occur is $10 million.If the risk-free rate is 4%,the expected return on the market is 9%,and the beta of the risk is -3,what is the actuarially fair insurance premium?

• A)$9,174
• B)$9,524
• C)$9,615
• D)$9,009
• E)$11,236

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