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You own a house worth $400,000 that is located on a river. If the river floods moderately, the house will be completely destroyed. This happens about once every 50 years. If you build a seawall, the river would have to flood heavily to destroy your house, which happens about once every 200 years. What would be the annual premium for an insurance policy that offers full insurance? For a policy that only pays 75% of the home value, what are the expected costs with or without a seawall? Do the different policies provide an incentive to be safer (I.e.. , to build a seawall)?

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Financial Management, Finance

Category:- Financial Management
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