TOU would like to insure your property against terrorist attack The market value of the property is
TOU would like to insure your property against terrorist attack The market value of the property is 1000 euro. The probability of attack is 0.2 Risk free rate is 5% Expected return on the market portfolio is 10% Question 2.1. What is the expected loss from terrorist attack? Question 2.2. If beta of insurance = 0, what should be the expected return on insurance according to CAPM? Question 2.3. After careful calculations you have realized that beta = -1.3, what should be the new expected return according to CAPM? Question 2.4. Calculate actuarially fair insurance premium, for the case when beta is -1.3? *. We have two potential threats: fire and terrorist attack. The amount paid by insurance company is the same in both cases. The insurance contract against für same in both cases. The insurance contract against fire has beta=0, the insurance contract against terrorist attack has beta
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