UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN
College of Business
D E P A R T M E N T O F F I N A N C E
Finance 230 Assignment 3
Fall, 2007 Due: September 14, 2007
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. 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, and that you are willing to pay any additional premiums due for vehicle changes. 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. Your neighbor is insured with Country Insurance with the same coverages and limits you have on your policy. As your neighbor is taller than you, the seat is much further back, and you don’t take the time to adjust it. When a traffic light turns red as you approach you are unable to reach the brakes in time to stop the car, and you run the red light and hit a school bus in the intersection. Ten children are injured in the accident. Each child sues you and wins a bodily injury award of $50,000. It costs $80,000 to repair the bus, and $12,000 to repair your neighbor’s car.
A. 0 B. $200,000 C. $291,200
D. $391,900 E. None of the above
2. While on a four week vacation, you rent a car. You decline the insurance coverage offered by the rental agency. On the last day of your vacation, while you are checking out of the hotel, the car with all your luggage in it is stolen and never recovered. The rental agency holds you responsible for the loss. The car had an Actual Cash Value of $28,000. Your luggage was worth $800.
A. 0 B. $200 C. $28,200
D. $28,800 E. None of the above
3. You borrow your spouse's car. Your spouse has his/her own insurance with Nationwide with the same coverages and limits you have on your own policy. While driving that car, you are hit from behind by an uninsured driver and seriously injured. You incur $40,000 in medical bills and $20,000 in lost wages. You would be entitled to a bodily injury award of $140,000 if the other driver had been insured. It also costs $10,000 to repair your spouse's car.
A. 0 B. $15,000 C. $125,000
D. $134,900 E. None of the above
4. Your 22 year old son John, who resides with you but is attending college away from home, borrows his roommate’s car for an errand. His roommate has a policy with Country Companies that includes liability with 20/40/15 limits, and uninsured and underinsured motor vehicle coverage, both with 20/40 limits, but no medical payments or physical damage coverage. While driving this car, John is hit from behind by an uninsured driver. John incurs $27,000 in medical bills and would be entitled to a $58,000 bodily injury award if the other driver had been insured. Also, the roommate’s car incurs damages that cost $7,400 to repair.
A. 0 B. $7,300 C. $25,000
D. $45,300 E. None of the above
5. Your car won’t start one morning so you have it towed to a service station for repairs. It turns out that you need a new carburetor. While your car is being repaired, the service station lets you use one of their cars, but warns you that there is no insurance coverage on that car. While you are driving the garage's car, you run into a tree, damaging this car. It costs $25 for towing your car to the service station, $400 for a new carburetor in your car and $800 to repair the borrowed car.
A. $25 B. $725 C. $1,100
D. $1225 E. None of the above
6. Your 21 year old daughter Alice, who lives with you, has her 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, but no other coverages. Alice lets your son Jake, who lives with you but does not own a car, borrow her car. Jake runs into a house, causing $3,000 in damage to her car and $30,000 in damage to the house.
A. 0 B $2,900 C. $7,900
D. $32,900 E. None of the above
7. You decide that you would like a new car so on September 11, 2007, you go to University Auto Park and buy a 2007 Lamborghini for $350,000 (less the $9,100 you get in trade for your Sebring). In all the excitement, you forget to tell State Farm about this new car. Four days later, at 3 am when the Edens Expressway in Chicago is clear of traffic, you decide to see just how fast it can go. You learn that it can go faster than you can control it, and you run into a concrete bridge support. You call for a tow truck to take it to a nearby repair shop. It costs $100 for the tow and $120,000 to repair the car.
A. 0 B. $9,100 C. $119,900
D. $120,000 E. None of the above
- Your 17-year old son, Mike, who lives with you, borrows your car to take his date, Nicole, to a movie. Mike does not own a car, or have his own insurance policy. After the movie, being the gentleman that he is, Mike opens the car door for Nicole. However, he accidentally closes it on her leg. Mike drives Nicole straight to the hospital, where she must stay for a couple days. Her medical bills are $12,000. Nicole sues Mike for the injury to her leg and wins a bodily injury award of $35,000.
A. 0 B. $12,000 C. $35,000
D. $47,000 E. None of the above
9. Your neighbor borrows your car one day. Your neighbor has her own car insurance policy with Progressive Insurance Company, with the same limits and coverages that you have on your policy. Your neighbor loses control of your car and hits another car that is insured by State Farm, damaging both cars and injuring herself. It costs $12,000 to repair your car and $1,500 to repair the other car. Your neighbor incurs $26,000 in medical expenses and the person in the other car has no injuries.
A. 0 B. $11,900 C. $13,400
D. $38,500 E. None of the above
10. According to John Wright, the guest speaker on August 31, what is the starting point to all greatness?
A. Skill B. Focus C. Definiteness of purpose
D. Talent E. Energy