Use the Information for the Question(s)below

question 16

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? Show your calculations.
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Definitions:

Positive Psychology

A branch of psychology focused on the study of positive aspects of human life, such as happiness and well-being.

Enrich Life

Actions or activities intended to make life more fulfilling, meaningful, or enjoyable.

Basic Emotions

Fundamental feelings that are universal among humans, such as happiness, sadness, fear, disgust, surprise, and anger, which are thought to be encoded in our genes.

Psychologists

Professionals who study mental processes and behavior through observation, interpretation, and recording how individuals relate to one another and the environment.