A B C D E F

5 Low Gold High Gold

Price Price
6 Prob=0.5 0.5
7 No Fire
LossProb=0.5 200 400
8 Fire Loss
Prob=0.5 100 300
9
10
11 Expected Earnings 250
12 Avg Earnings without fire Loss 300
13 Gold Price Risk 100
14 Liab Loss 100
15 Insurance Prem 50
16
17
18
19
20
21 gold hedge ratio 0.2
22 insurance ratio 1
23
24 target std. 80
25 target variance 6400
26
27 variance of firm 6400
 G H I J K

8
h i
9 0.2 1
10 0.25 0.44
11 0.3 0.2254
12 0.35 0.067
13 0.3755 0
14
15
16
17
18
19
20
21
22
23
24
25
26
27