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Study Guides - RMI001 INTRODUCTIONTORISKMANAGEMENT...

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RMI 001 I NTRODUCTION   TO  R ISK  M ANAGEMENT P RACTICE  P ROBLEMS  – L OSS  M ATRIX S PRING  2007 All matrices are to be constructed with the Risk Management Alternatives as the  rows and the States of the World as the columns (as we did in class).   NOTE: Questions 1 and 2 are related They   are about the same firm 1. Assume a firm owns a small airplane worth $250,000.  The firm can purchase  full  insurance  for the risk of any physical damage to this plane for a premium of  $10,000.  Assume that if a loss occurs, it will be a total loss.  The firm is also  considering  retention  as an alternative to full insurance. a. Construct an  after tax  loss matrix if the firms marginal tax rate is 30%.  (Note: this will be a 2x2 matrix.) b. Assume now that the probability of loss is known to be 2%.  Suppose the risk  manager wants to minimize expected losses (EL) as her decision rule.  What 
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This note was uploaded on 04/28/2011 for the course RMI 2901 taught by Professor Manaka during the Spring '11 term at Temple.

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Study Guides - RMI001 INTRODUCTIONTORISKMANAGEMENT...

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