UNIVERSITY OF ILLINOIS AT URBANA CHAMPAIGN College of Business D E PAR T M E N T O F F I NAN C E Finance 230 Sample Second Exam For the first three 3 questions assume that you have the State Farm Car Policy handed out in class including the coverages and limits shown on the Declarations page Also assume that the 2001 Sebring is the only car you own unless the question indicates that you purchase another vehicle and that any situations involving borrowing cars is done with permission unless otherwise stated For each situation calculate how much your insurance policy would pay in total Unless otherwise indicated assume the loss occurs during the policy period Do not assume facts not given in the question 1 You borrow your neighbor s car to run an errand Your neighbor has his own insurance with Progressive with the same coverages and limits you have on your car While driving your neighbor s car you run into a limousine carrying seven people Each of these people sues you and wins a bodily injury award of 50 000 The limo is totaled It was worth 150 000 and you are held liable for the entire loss You are also injured in the accident and incur 50 000 in medical bills A B C D E 2 0 100 000 125 000 425 000 None of the above On October 14 2005 you buy a new 2006 Lexus to replace your Sebring You forget to tell State Farm about this change until you have an accident on December 3 2005 In the accident you lose control of the car and run into a house It costs 38 000 to repair the Lexus the ACV was 40 000 and 22 000 to repair the house A B C D E 0 22 000 37 900 59 900 None of the above 3 Your son who lives with you has his own car and carries liability with 50 100 25 limits and uninsured motor vehicle coverage and underinsured motor vehicle coverage both with 50 100 limits with Travelers on his own policy but no other coverages Your daughter who also lives with you borrows your son s car one night and gets a flat tire while driving on I 57 Unfortunately your son s car does not have a spare tire A tow truck comes to help your daughter out It charges 100 for a new tire and 50 to put the tire on the car A B C D E 0 50 100 150 None of the above For the next 2 questions use the coverages described in the 2005 2006 U of I Student Health Insurance Plan for Undergraduates to determine how much your student health policy will pay in the following situations and assume the following 1 2 3 4 5 6 4 The average semi private room and board rate charged by each hospital is 500 All treatments are medically necessary Unless otherwise indicated all charges are considered to be the Usual and Customary fees Each situation is the only claim you have ever had while insured under this Insurance Plan All treatment is provided by plan provider hospitals or facilities and licensed providers Unless otherwise indicated each loss occurred during the academic year You visit a doctor for a severe pain in your back The doctor prescribes medicine and ultrasound treatments You are billed 100 for the visit to the doctor 50 for the medicine and 300 for the ultrasound treatments A B C D E 5 You are seriously injured while bungee jumping You are hospitalized for twenty days and undergo surgery You are billed 500 per day room and board 10 000 for the operating room 6 100 for surgical dressings and 15 000 for the surgery A B C D E 6 0 160 200 250 None of the above 0 32 800 36 000 39 000 None of the above Which of the following costs incurred by a plaintiff in a bodily injury claim would represent general damages I II III IV A B C D E 7 Hospital bills Pain and suffering Loss of wages Punitive damages I only II only I and III II and IV None of the above Based on the discussion in class how can making a mistake with life insurance be fatal A B C D E If you don t have life insurance when you die If you forget to pay the premiums when they are due If you lie on your application and die in the first two years of the policy If you name the wrong person as beneficiary None of the above For the next two questions refer to the following whole life policy for a 35 year old male at the time he purchased the policy Face Amount Annual Premium Dividends in year 10 first 10 years in total Cash Values end of 9th year end of 10th year Accumulated Value of Dividends at the end of 10 years at 6 8 500 000 7 500 4 000 21 000 50 000 57 000 40 000 What is the 10 year traditional net cost index per 1 000 of coverage A B C D E 4 40 0 60 0 30 1 11 None of the above 9 What is the 10 year interest adjusted net payments cost index per 1 000 of coverage based on a 6 percent interest rate A B C D E 10 What is the 10 year equivalent level annual dividend per 1000 of coverage based on a 6 percent interest rate A B C D E 11 0 30 1 11 7 29 9 27 None of the above 0 3 01 5 73 8 00 None of the above Why might it be more useful to consider life insurance surrender cost comparisons for a 17 year period rather than a 20 year period A B C D E Companies are more likely to manipulate cash values for a common comparison period Figures show that policyholders are more likely to surrender a policy after 17 years than after 20 years After 17 years most people no longer need life insurance Due to the impact of interest rates payments after 17 years are not considered significant None of the above For the next three 3 questions please consult the whole life insurance policy of John Doe located in Appendix E and the chapters on life insurance in the textbook To simplify the calculations assume that John Doe has selected the Premium Payment option for dividends item 4 2 on page 741 and ignore the Premium Refund at Death provision the last point under item 3 1 on page 741 and the Dividend at Death provision item 4 4 on page 741 Note that provision 1 4 on page 740 does apply Unless otherwise indicted he has made all premium payments when due and kept the policy in force until his death 12 John Doe keeps his life insurance policy in force until August 1 2006 and then selects the extended term insurance option If he dies in a boating accident on …