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 Fall 2007 Assignment 1 Due August 31 2007 Remember all assignments must be turned in by the beginning of class to get credit For the following questions assume that you have the State Farm Car Policy handed out in class including the coverages and limits shown on the Declarations page 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 While you are driving your car in Mexico 20 miles from the U S border you run into a parked car and are injured It costs 800 to repair your car and 1200 to repair the car you hit You incur 500 in medical bills as a result of this accident Your policy will pay A D 0 2 400 B E 1 900 None of the above C 2 000 2 While you are driving your car in Urbana you lose control and run into a house injuring four people inside the house They all sue you and win the following bodily injury awards first person 50 000 second person 170 000 third person 40 000 and fourth person 60 000 It costs 125 000 to repair the house and 12 500 to repair your car Your policy will pay A D 0 412 400 B E 362 400 None of the above C 400 000 3 While driving your car across a bridge in Minnesota the bridge collapses and your car falls into the river below Someone pulls you from your car just before in sinks to the bottom of the river never to be recovered The Actual Cash Value of your car before it fell off the bridge was 9 100 You incur 30 000 in medical bills from this incident Your policy will pay A D 0 34 100 B E 9 000 None of the above C 30 000 4 While driving your brother who lives with you around campus you accidently run into a tree Your brother is injured and incurs 17 000 in medical bills It costs 2 000 to repair your car Your brother sues you so much for his next birthday present and wins a liability award of 40 000 Your policy will pay A D 0 41 900 B E 1 900 None of the above C 18 900 5 You are at the North Carolina coast when Hurricane Felix hits Although you are able to get away you have to leave your car and luggage behind The hurricane winds blow your car over causing the trunk to open Your luggage is then blown away and never recovered It costs 3500 to repair your car The value of your luggage was 500 Your policy will pay A D 3 400 4 000 B E 3 600 None of the above C 3 700 6 After pumping gas you forget to remove the hose from your gas tank As you drive off the hose breaks spilling some gasoline and starting a fire The fire causes 325 000 in damage to the gas station You are held responsible for the entire loss Your policy will pay A D 0 325 000 B E 100 000 None of the above C 300 000 7 Your car won t start one morning so you have it towed to the nearest garage for repairs Your ignition switch is defective and has to be replaced It costs 400 to replace your ignition switch and 40 for the tow Your policy will pay A D 0 440 B E 40 None of the above C 340 8 Your car is stolen and never recovered You immediately report the loss to your agent Ten days after you report your car stolen State Farm agrees to pay you for the loss The Actual Cash Value of your car before it was stolen was 9 100 In the meantime you had rented a car for 40 a day for the entire time the car was missing Your policy will pay A D 9 000 9 400 B E 9 100 None of the above C 9 350 9 While driving your car to Gibson City Illinois you hit a cow that was standing in the road Although the cow is not seriously injured your car is badly damaged and won t run It costs 50 to tow your car to the nearest location that can repair it and 4200 to repair your car Since you don t want to be stranded in Gibson City you rent a car for 25 per day for the 3 days it takes to get your car repaired Your policy will pay A D 0 4 200 B E 4 100 None of the above C 4 175 10 You are driving a friend along with some of his belongings back to campus from Chicago on Labor Day weekend when you hit a bridge abutment on I 57 Your friend is injured and his belongings are damaged He incurs 500 in medical bills He sues you so much for the friendship and wins a bodily injury award of 3 000 and a property damage award for 1 000 It costs 1500 to repair your car Your policy will pay A D 1 400 5 400 B E 1 900 None of the above C 4 400
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