**This is a Multi-Part Multiple Choice Question = worth 8 po…
**This is a Multi-Part Multiple Choice Question = worth 8 points total Mark is the Risk Manager of Crown Condo Inc. – which owns a $500,000 wood frame condominium building in Redding, California. Being located in Northern California, the condo building faces the peril of wildfire. If no wildfire strikes the area (No Loss) = then no loss occurs to the condo building. If a wildfire would strike the area, it would completely destroy the entire condo building (Total Loss of the value of the building) Mark estimates the probability of a wildfire striking the area = 1.5% Mark is deciding between three Risk Management Options for the Crown Condo building: 1) Retention 2) Deductible Insurance Policy Limit = $500,000 (the value of the building) Deductible = $3,000 Premium = $10,000 3) FULL Insurance Face Amount = $500,000 There is no deductible with Full Insurance Premium = $15,000 Question #1: Complete the below Loss Matrix based on the information provided to you above: Risk Mgmt. Option No Loss Total Loss RM Option #1 = Retention Loss Amount Risk Treatment Costs RM Option #2 = Deductible Insurance Loss Amount Risk Treatment Costs RM Option #3 = Full Insurance Loss Amount Risk Treatment Costs Question #2: Mark’s Worry Value for each of the three risk management options is as follows: Worry Value for Retention = $5,000 Worry Value for Deductible Insurance = $1,500 Worry Value for Full Insurance = ??? Calculate the TOTAL COST of each of the three risk management options: ***The first component of Total Cost = the Expected Value or Loss > has been provided for you… no need to calculate it! RM Option #1: Retention > TOTAL COST = ($7,500) + (?) + (?) = RM Option #2: Deductible Insurance > TOTAL COST = ($45) + (?) + (?) = RM Option #3: Full Insurance > TOTAL COST = ($0) + (?) + (?) = Question #3: If Mark’s decision rule is to minimize Total Cost – which risk management option does he choose? =