A local builder offers to place with you insurance on every house he/she builds while it is under construction. In return, he/she wants you to allow him/her 20% discount off the premium required by insurers. How would you respond to comply with RIBO Regulations? You can only allow a five percent (5%) discount because of your overhead and expenses. You will pay the builder a flat $10.00 fee for each house, but it is contrary to RIBO Regulations to discount the premium. You refuse to pay the builder anything, since it would contravene RIBO Regulations. You offer the builder a 20% premium refund for those houses that have no claims while under construction. 110) ENG [ 11:15 AM

A local builder offers to place with you insurance on every house he/she builds while it is under construction. In return, he/she wants you to allow him/her 20% discount off the premium required by insurers. How would you respond to comply with RIBO Regulations? You can only allow a five percent (5%) discount because of your overhead and expenses. You will pay the builder a flat $10.00 fee for each house, but it is contrary to RIBO Regulations to discount the premium. You refuse to pay the builder anything, since it would contravene RIBO Regulations. You offer the builder a 20% premium refund for those houses that have no claims while under construction. 110) ENG [ 11:15 AM

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.10P

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A company is considering implementing a project that generates a guaranteed income of 1000 from next year and every year thereafter, while the project has an investment cost of 10,000 today. In addition, there is a one-off maintenance cost of 20 000 in exactly 10 years time. Assume that the risk-free interest rate is 3 percent. Is the project profitable to implement?
Q. 4 Suppose you, owner and CEO of a corporation, are considering a $25 million project that constructs a building in the downtown area of Toronto. The current market price of the similar building is about $20 million. The future price is uncertain. It may be either $28 million or $22 million in one year from now, depending on the economic situation. The company can borrow at a risk-free rate of 5 percent per year. What is the value of this project? Use a binomial model to value this real option.
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Is it worth investing in a project that costs up to 600 million dollars across 11 years but is expected to bring tens of billions of dollars in benefit between 60 and 120 years from now when there is a 0 percent discount rate? Why or why not? What about a discount rate greater than 0, should the policy be implemented then?
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You are in the market for a new refrigerator for your company's lounge, and you have narrowed the search down to two models. The energy-efficient model sells for $700 and will save you $45 at the end of each of the next five years in electricity costs. The standard model has features similar to the energy-efficient model but provides no future saving in electricity costs. It is priced at only $500. Assuming your opportunity cost of funds is 6 percent, which refrigerator should you purchase?
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PJ has an one-year insurance policy with a deductible of D and a maximum reimbursement of U, each applied to total annual losses. PJ experiences two losses (L1 and L2) during the year. What is the total out-of-pocket amount for PJ? (Hint: list all three possible scenarios.)
An entrepreneur recently learned about a new hotel business that requires an initial investment of $12M and annual cash flow of $2M in perpetuity. The appropriate discount rate is 20%. Now, consider a pretty similar scenario: an Initial investment $12M. Now, in good state, $6M annual cash flows. In a bad state, -$2M annual cash flows. Furthermore, assume that the entrepreneur wants to own at most, 1 hotel (no option to expand). - But things change when we consider the abandonment option. At date 1, the entrepreneur will know which forecast has come true. If the world is in the good state, he will keep the project alive. If bad state, he will abandon the hotel after period 1. - Now, what is the NPV of the project? - What is the value of the option to abandon?
Question content area Part 1 The potential market represents all active duty military members, allveterans, and their families. Assume that according to the United States Department of Defense, as ofDecember 31, last year there were 1 comma 361 comma 597 active duty personnel in all armed services.The veteran population totaled 21 million last year. Assuming the average cost of life insurance is $750 peryear and that potential customers purchase one policy per year, use the chain ratio method to calculatethe market potential for life insurance in the military market. Hint: see the Market Potential and SalesEstimates section of Appendix 3 Marketing by the Numbers in your textbook. Part 2 The number of buyersin the market can be estimated as 22,361, 597. (Round to the nearest whole number.) Part 3 Themarket demand is estimated as $16.77 million. (Round to the nearest whole number.)