UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGNCollege of BusinessD E P A R T M E N T O F F I N A N C E Finance 230 Assignment 1Fall, 2007 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, includingthe 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. 0 B. $1,900 C. $2,000D $2,400 E. None of the above2. 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 repairthe house and $12,500 to repair your car. Your policy will pay:A. 0 B. $362,400 C. $400,000D. $412,400 E. None of the above3. 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. 0 B. $9,000 C. $30,000D. $34,100 E. None of the above4. 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. 0 B. $1,900 C. $18,900D. $41,900 E. None of the above5. You are at the North Carolina coast when Hurricane Felix hits. Although you are able to get away, youhave 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. Thevalue of your luggage was $500. Your policy will pay:A. $3,400 B. $3,600 C. $3,700D. $4,000 E. None of the above6. 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. 0 B. $100,000 C. $300,000D. $325,000 E. None of the above7. 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 thetow. Your policy will pay:A. 0 B. $40 C. $340D. $440 E. None of the above8. 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. $9,000 B. $9,100 C. $9,350D. $9,400 E. None of the above9. 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 carto 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. 0 B. $4,100 C. $4,175D. $4,200 E. None of the above10. 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 bodilyinjury award of $3,000 and a property damage award for $1,000. It costs $1500 to repair your car. Your policy will pay:A. $1,400 B. $1,900 C. $4,400D. $5,400 E. None of the
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