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 4 Due September 21 2007 1 The willingness to pay a premium for car insurance that is higher than your expected losses represents A Risk neutrality D Pure risk B E Risk aversion None of the above C Risk seeking behavior 2 The property damage coverage in the State Farm Car Policy protects you against which of the following exposures A Personal loss exposures B D Moral hazard E Property loss exposures C None of the above Liability loss exposures 3 Which ideal requisite for insurability is most seriously violated by a policy insuring Bruce Springsteen s voice A Many similar exposure units B D Small possibility of a catastrophe Fortuitous losses E C Definite losses Economic feasibility 4 Calculate the expected loss for bodily injury liability insurance if the loss frequency is 3 in 100 and the loss severity is 7 500 A 3 D 2250 B E 30 None of the above C 75 5 The State Farm Car Policy liability coverage can be best classified as which of the following A B C D E Personal property liability private involuntary Commercial life health private voluntary Personal property liability government voluntary Personal property liability private voluntary Personal life health private involuntary 6 The State Farm Car Policy liability coverage excludes bodily injury relatives page 8 item 2 c to avoid violating which of the following ideal requisites for insurability A B C D E Many similar exposure units Fortuitous losses Definite losses Small possibility of a catastrophe Economic feasibility 7 The State Farm Car policy states that a Temporary Substitute Car means a car not owned by registerted to or leased to you or your spouse if it replaces your car for a short time On September 14 2007 you borrow another car that has no other insurance while your Sebring is for repairs The repairs require ordering parts from abroad that take several weeks to arrive On October 13 2007 you are in an accident with the borrowed vehicle If you file a claim for coverage which would apply A B C D E State Farm could deny the claim by arguing that 30 days is not a short time State Farm would pay the claim since insurance policies are contracts based on utmost good faith State Farm could deny the claim since you did not provide any consideration for this coverage State Farm would have to pay the claim since this is a contract of adhesion None of the above 8 You advertise for a graduate student to take notes for you in Finance 260 by posting a note on the bulletin board in Sherman Hall and offer to pay 100 for a full semester s notes Two days after the final exam a 22 year old law student provides you with a full semester of excellent notes which might have helped you in the class and asks for his 100 You decline to pay him and he sues you Which if any of the requirements for a contract would be missing A B C D E Offer and acceptance Consideration Competent parties Legal purpose None are missing and you would be required to pay him the 100 9 You sell your car to a woman who responds to an ad you placed in the newspaper but you mistakenly pay the renewal premium on your insurance policy on the car During the policy term you find out that the woman you sold the car to was in an accident that caused extensive damage to the car Which of the following is true A You can collect for the damages done to the car since you had an insurable interest at the inception of the policy B You cannot collect for the losses to the car because you were not involved in the accident C You can collect under your policy but you will have to turn over the payment to the woman you sold your car to under the subrogation clause D You cannot collect for the losses to the car since you did not have an insurable interest at the time of loss E None of the above 10 According to Tony Falcone the guest speaker on September 7 what is RLI s most successful product A B C D E Umbrella Home Auto Surety Workers Compensation
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