Genentech's main facility is located in south San Fransico. Suppose that Genentech would experience a direct...

Genentech's main facility is located in south San Fransico. Suppose that Genentech would experience a direct loss of 550 million in the event of a major earthquake disrupting its operation. The chance of such an earthquake is 2.0 per year, with a beta of -50.

A. If the risk-free interest rate is 5.0%, and the expected return of the market is 11.09%. What is the actuarially fair insurance premium to cover genetech's loss?

Suppose the insurance premium to cover Genetech's loss is_____

B. Suppose the insurance company raises the premium by an additional 10% over the amount calculated in the past (a) to cover its administration and overhead costs.

What amount of financial distress or insurance costs would genetech have to suffer if it were not insured to justify purchasing the insurance?

The amount of financial distress of issuance costs is_______

Expert Solution

jeff jeffy answered 2 years ago

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