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Fin 230 Review Session

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Title: Fin 230 Review Session


1
Fin 230 Review Session
  • Exam 2

Brian Alvin balvin2_at_uiuc.edu Bryan Brooks
bbrooks1_at_uiuc.edu Brett Engel bengel_at_uiuc.edu Aman
da Kastle kastle_at_uiuc.edu Katie Kimble
kkimble2_at_uiuc.edu Laura Nemeth lnemeth2_at_uiuc.edu
2
Overview
  • Auto and Health Policy Review
  • Reduction of Benefits (HW 7)
  • Life Insurance
  • Types (HW 7)
  • Benefits (HW 8)
  • Cost Comparisons (HW 9)
  • Liability Exposures (HW 9)
  • Homeowners Insurance (HW 10)

3
Auto Review
4
Auto Review
  • Your daughter lives with you and has her own car.
    Since her insurance premiums have increased
    substantially, she decides to cancel her car
    insurance on October 10, 2006, but she doesnt
    tell you this. You borrow her car on October
    20,2006. While driving her car, you run into a
    tree, injuring yourself and her car. Your medical
    bills are 30,000. It costs 10,400 to repair
    your daughters car the Actual Cash Value of her
    car before the accident was 9,000.
  • 0
  • 33,900
  • 35,300
  • 38,900
  • None of the above

5
Auto Review
  • Your daughter lives with you and has her own car.
    Since her insurance premiums have increased
    substantially, she decides to cancel her car
    insurance on October 10, 2006, but she doesnt
    tell you this. You borrow her car on October
    20,2006. While driving her car, you run into a
    tree, injuring yourself and her car. Your medical
    bills are 30,000. It costs 10,400 to repair
    your daughters car the Actual Cash Value of her
    car before the accident was 9,000.
  • 0
  • 33,900
  • 35,300
  • 38,900
  • None of the above

6
Auto Review
  • You borrow your neighbors car, which is covered
    under a policy with Firemans Fund with the same
    coverages and limits you have on your car. You
    lose control of the car and hit a pedestrian. The
    pedestrian sues you and wins a bodily injury
    award of 250,000.
  • 0
  • 25,000
  • 100,000
  • 150,000
  • None of the above

7
Auto Review
  • You borrow your neighbors car, which is covered
    under a policy with Firemans Fund with the same
    coverages and limits you have on your car. You
    lose control of the car and hit a pedestrian. The
    pedestrian sues you and wins a bodily injury
    award of 250,000.
  • 0
  • 25,000
  • 100,000
  • 150,000
  • None of the above

8
Auto Review
  • While on a two week vacation in Los Angeles, you
    rent a car. You decline the insurance coverage
    offered by the rental agency. On the last day of
    your vacation, you run into a low hanging branch,
    breaking the front windshield and damaging the
    hood. It costs 600 to replace the windshield and
    1,500 to repair the hood. The rental agency
    holds you responsible for the loss.
  • 0
  • 600
  • 2,000
  • 2,100
  • None of the above
  • Answer in the lectures notes for non-owned
    cars

9
Auto Review
  • While on a two week vacation in Los Angeles, you
    rent a car. You decline the insurance coverage
    offered by the rental agency. On the last day of
    your vacation, you run into a low hanging branch,
    breaking the front windshield and damaging the
    hood. It costs 600 to replace the windshield and
    1,500 to repair the hood. The rental agency
    holds you responsible for the loss.
  • 0
  • 600
  • 2,000
  • 2,100
  • None of the above
  • Answer in the lectures notes for non-owned
    cars

10
Health Policy Review
11
Health Policy Review
  • While hiking in the mountains of Colorado, you
    trip and knock yourself unconscious. An air
    ambulance flies you to the nearest hospital
    emergency room. The doctor does an X-ray and CT
    scan on you, and finds out that you are able to
    go home to recuperate. You are billed 2,000 for
    air ambulance, 750 for the CT scan, 200 for the
    x-rays and 300 for the treatment in the
    emergency room.
  • 0
  • 1,090
  • 1,840
  • 2,000
  • None of the above

12
Health Policy Review
  • While hiking in the mountains of Colorado, you
    trip and knock yourself unconscious. An air
    ambulance flies you to the nearest hospital
    emergency room. The doctor does an X-ray and CT
    scan on you, and finds out that you are able to
    go home to recuperate. You are billed 2,000 for
    air ambulance, 750 for the CT scan, 200 for the
    x-rays and 300 for the treatment in the
    emergency room.
  • 0
  • 1,090
  • 1,840
  • 2,000
  • None of the above

13
Health Policy Review
  • You failed your goal-setting project for Fin 230
    and realize that everyone else got As. You are
    really depressed and want to snap out of your
    depression. You see a psychiatrist 2 times each
    week for a year. Each session with your
    psychiatrist costs you 90/visit
  • 0
  • 1,575
  • 4,680
  • 7,488
  • None of the above

14
Health Policy Review
  • You failed your goal-setting project for Fin 230
    and realize that everyone else got As. You are
    really depressed and want to snap out of your
    depression. You see a psychiatrist 2 times each
    week for a year. Each session with your
    psychiatrist costs you 90/visit
  • 0
  • 1,575
  • 4,680
  • 7,488
  • None of the above

15
Health Policy Review
  • After you have been waiting for 4 years for a new
    kidney, doctors finally find one. You are
    charged 500 a day for the hospital room, 30,000
    for the operating room, 45,000 in drugs
    supplies. The surgeon charges you 100,000 and
    the assistant surgeon charges you 50,000. You
    stay in the hospital for 25 days.
  • 0
  • 177,900
  • 185,400
  • 187,500
  • None of the above

16
Health Policy Review
  • After you have been waiting for 4 years for a new
    kidney, doctors finally find one. You are
    charged 500 a day for the hospital room, 30,000
    for the operating room, 45,000 in drugs
    supplies. The surgeon charges you 100,000 and
    the assistant surgeon charges you 50,000. You
    stay in the hospital for 25 days.
  • 0
  • 177,900
  • 185,400
  • 187,500
  • None of the above (205,400)

17
HW 7
18
Use for questions 1 2
  • You are driving your car along Green Street when
    a squirrel darts out in front of your car. You
    swerve to avoid hitting the animal, but you lose
    control and crash into a light pole. An
    ambulance races you to Carle Hospital where you
    are hospitalized for 20 days and undergo
    extensive surgery. The surgeon charges you
    40,000 for the surgery, the assistant surgeon
    charges 9,000 and the anesthesia costs 20,000.
    The anesthetist personally administered the
    anesthesia and remained in constant attendance
    during the surgery. You are billed 500 per day
    for the hospital room and board, 5,000 for the
    operating room expenses and 2,500 for medicine
    while in the hospital. You are billed 500 for
    the ambulance ride. It costs 9,000 to repair
    your car, which had a 15,000 cash value at the
    time of the loss.

19
Health Insurance
  • What is the Initial Benefit Payment under the U
    of I Undergraduate Student Insurance Plan?
  • 0
  • 35,500
  • 35,825
  • 42,450
  • None of the above

20
Health Insurance
  • What is the Initial Benefit Payment under the U
    of I Undergraduate Student Insurance Plan?
  • 0
  • 35,500
  • 35,825
  • 42,450
  • None of the above

21
Health Insurance
  • What is the Total Payment the U of I
    Undergraduate Student Insurance Plan will make on
    this loss?
  • 0
  • 53,100
  • 62,000
  • 71,000
  • None of the above

22
Health Insurance
  • What is the Total Payment the U of I
    Undergraduate Student Insurance Plan will make on
    this loss?
  • 0
  • 53,100
  • 62,000
  • 71,000
  • None of the above

23
Life Insurance
  • Based on the Commissioners 1980 Standard
    Mortality Table (Appendix F in the text), how old
    would a male be when he lived has lived half his
    total life expectancy (within 1 year)?
  • 24
  • 37
  • 39
  • 50
  • None of the above

24
Life Insurance
  • Based on the Commissioners 1980 Standard
    Mortality Table (Appendix F in the text), how old
    would a male be when he lived has lived half his
    total life expectancy (within 1 year)?
  • 24
  • 37
  • 39
  • 50
  • None of the above

25
Life Insurance
  • A 30-year-old female purchased a 100,000 whole
    life policy for 1,500 a year. She receives
    dividends of 5,000 over time. At age 60, she
    surrenders that policy for 70,000. If this
    individual is in the 28 tax bracket at that
    point, how much does she have to pay in taxes
    when she surrenders the policy?
  • 0
  • 5,600
  • 8,400
  • 30,000
  • None of the above

26
Life Insurance
  • A 30-year-old female purchased a 100,000 whole
    life policy for 1,500 a year. She receives
    dividends of 5,000 over time. At age 60, she
    surrenders that policy for 70,000. If this
    individual is in the 28 tax bracket at that
    point, how much does she have to pay in taxes
    when she surrenders the policy?
  • 0
  • 5,600
  • 8,400
  • 30,000
  • None of the above

27
Life Insurance
  • Which of the following would be the most
    appropriate for an individual who is looking for
    a tax sheltered investment and is willing to
    accept risk in hopes of a higher return?
  • Re-entry term
  • Endowment life
  • Whole life
  • Yearly renewable term
  • Variable life

28
Life Insurance
  • Which of the following would be the most
    appropriate for an individual who is looking for
    a tax sheltered investment and is willing to
    accept risk in hopes of a higher return?
  • Re-entry term
  • Endowment life
  • Whole life
  • Yearly renewable term
  • Variable life

29
HW 8
30
  • If an individual wants no uncertainty in an
    insurance policy, which type of life insurance
    would he or she be most comfortable with?
  • Variable Life
  • Universal Life
  • Whole Life
  • Variable Universal
  • Re-entry Term

31
  • If an individual wants no uncertainty in an
    insurance policy, which type of life insurance
    would he or she be most comfortable with?
  • Variable Life
  • Universal Life
  • Whole Life
  • Variable Universal
  • Re-entry Term

32
  • John surrenders the policy on August 1, 2003 and
    selects the paid up insurance option. If he dies
    in a fire on August 15, 2019, how much will his
    wife Jane receive from the insurance company?
  • 0
  • 8,528
  • 30,500
  • 100,000
  • None of the above

33
  • John surrenders the policy on August 1, 2003 and
    selects the paid up insurance option. If he dies
    in a fire on August 15, 2019, how much will his
    wife Jane receive from the insurance company?
  • 0
  • 8,528
  • 30,500
  • 100,000
  • None of the above

34
  • John Doe pays his first five premiums on time,
    but then he gets amnesia and forgets to pay the
    rest of the premiums. If John dies on October
    31, 2010, how much will his wife Jane receive
    from the insurance company?
  • 0
  • 4,588
  • 18,700
  • 100,000
  • None of the above

35
  • John Doe pays his first five premiums on time,
    but then he gets amnesia and forgets to pay the
    rest of the premiums. If John dies on October
    31, 2010, how much will his wife Jane receive
    from the insurance company?
  • 0
  • 4,588
  • 18,700
  • 100,000
  • None of the above

36
  • John dies on August 7, 2046 from old age. His
    wife Jane with an adjusted age of 85 elects to
    receive joint and survivor life income with her
    son, Tom, who has an adjusted age of 60. What is
    the minimum monthly benefit they will receive?
  • 0
  • 4.40
  • 440
  • 480
  • None of the above

37
  • John dies on August 7, 2046 from old age. His
    wife Jane with an adjusted age of 85 elects to
    receive joint and survivor life income with her
    son, Tom, who has an adjusted age of 60. What is
    the minimum monthly benefit they will receive?
  • 0
  • 4.40
  • 440
  • 480
  • None of the above

38
  • If John Doe had lied on the policy application
    about his health, but the insurance company did
    not find out about the lie until Johns death on
    August 1, 2005, how much would Jane receive as a
    benefit?
  • 0
  • 11,411
  • 15,330
  • 100,000
  • None of the above

39
  • If John Doe had lied on the policy application
    about his health, but the insurance company did
    not find out about the lie until Johns death on
    August 1, 2005, how much would Jane receive as a
    benefit?
  • 0
  • 11,411
  • 15,330
  • 100,000
  • None of the above

40
HW 9
41
Life Insurance Cost Comparisons
  • Use the following information for the next 5
  • questions about a Whole Life policy
  • Face amount 275,000
  • Annual Premium 3,700
  • Dividends
  • In year 20 3,575
  • First 20 years total 19,500
  • Cash Values
  • End of 19th year 74,000
  • End of 20th year 81,000
  • Accumulated Value of Dividends at
  • The end of 20 years at 7.25 48,250

42
Traditional Net Cost
  • What is the 20 year traditional net cost
  • index per 1,000 of coverage?
  • -7.64
  • -4.82
  • -3.55
  • 1.14
  • None of the above

43
Traditional Net Cost
  • What is the 20 year traditional net cost
  • index per 1,000 of coverage?
  • -7.64
  • -4.82
  • -3.55
  • 1.14
  • None of the above

44
Interest Adjusted Surrender Cost
  • What is the 20 year interest adjusted surrender
  • cost index per 1,000 of coverage based on a
  • 7.25 interest rate?
  • 2.09
  • 3.05
  • 3.61
  • 6.76
  • None of the above

45
Interest Adjusted Surrender Cost
  • What is the 20 year interest adjusted surrender
  • cost index per 1,000 of coverage based on a
  • 7.25 interest rate?
  • 2.09
  • 3.05
  • 3.61
  • 6.76
  • None of the above

46
Interest Adjusted Net Payment Cost
  • What is the 20 year interest adjusted net payment
  • cost index per 1,000 of coverage based on a
  • 7.25 interest rate?
  • 6.47
  • 9.57
  • 11.89
  • 12.65
  • None of the above

47
Interest Adjusted Net Payment Cost
  • What is the 20 year interest adjusted net payment
  • cost index per 1,000 of coverage based on a
  • 7.25 interest rate?
  • 6.47
  • 9.57
  • 11.89
  • 12.65
  • None of the above

48
Interest Adjusted Net Payment Cost
  • What is the 20 year equivalent annual dividend
    per
  • 1,000 of coverage based on a 7.25 interest
    rate?
  • 1.57
  • 5.88
  • 10.68
  • 13.45
  • None of the above

49
Interest Adjusted Net Payment Cost
  • What is the 20 year equivalent annual dividend
    per
  • 1,000 of coverage based on a 7.25 interest
    rate?
  • 1.57
  • 5.88
  • 10.68
  • 13.45
  • None of the above (3.88)

50
Yearly Rate of Return
  • What is the yearly rate of return for the 20th
    policy year
  • if the annual renewable term rate for this
    individual is
  • 1.65 per 1,000?
  • 0.2
  • 4.7
  • 9.3
  • 30.2
  • None of the above

51
Yearly Rate of Return
  • What is the yearly rate of return for the 20th
    policy year
  • if the annual renewable term rate for this
    individual is
  • 1.65 per 1,000?
  • 0.2
  • 4.7
  • 9.3
  • 30.2
  • None of the above

52
HW 10
53
For the following questions, assume that you have
both the Homeowners Policy described in Appendix
A of your textbook and the State Farm Car Policy,
including the Declarations page, handed out in
class. For the Homeowners Policy, assume the
policy limits exceed 80 of the replacement cost
of the house. Also, use the following
information as a sample Declarations page for the
Homeowners Policy.
54
Type of Coverage Limits of Liability
Cov A Dwelling 100,000 Cov B Other
Structure 10 of Cov A limit Cov C Personal
Property 50,000 Cov D Loss of Use Actual
Loss Sustained Cov E Personal
Liability 100,000 (per occurrence)
Cov F Medical Payments 1,000
(per person)
55
While you are away, your teenage son and his
friends set up an indoor basketball court in the
living room. An errant shot dents the drywall
and then lands on your antique clock destroying
it. It costs 1500 to replace the clock (ACV
1000) and 300 to repair the wall.
  • 0 D. 1,550
  • 50 E. None of the above
  • 1,050

56
While you are away, your teenage son and his
friends set up an indoor basketball court in the
living room. An errant shot dents the drywall
and then lands on your antique clock destroying
it. It costs 1500 to replace the clock (ACV
1000) and 300 to repair the wall.
  • 0 D. 1,550
  • 50 E. None of the above
  • 1,050

57
While you are sitting at home an earthquake hits
your town. It destroys your house, which had a
replacement cost of 100,000, your personal
property, which had a replacement cost of 50,000
and an ACV of 40,000, and your car, which had an
ACV of 15,000. You are also injured and go to
the emergency room for treatment. You are billed
200 for the visit.
  • 0 D. 154,750
  • 15,000 E. None of the above
  • 15,200

58
While you are sitting at home an earthquake hits
your town. It destroys your house, which had a
replacement cost of 100,000, your personal
property, which had a replacement cost of 50,000
and an ACV of 40,000, and your car, which had an
ACV of 15,000. You are also injured and go to
the emergency room for treatment. You are billed
200 for the visit.
  • 0 D. 154,750
  • 15,000 E. None of the above
  • 15,200

59
While you are out of your house, a burglar breaks
down a door and steals your television set and
your watch. The TV has a replacement value of
800 and an Actual Cash Value of 500. Your
watch has a replacement value of 2500 and an
Actual Cash Value of 1500. It costs 500 to
repair the door.
  • 1,750 D. 2,300
  • 2,000 E. None of the above
  • 2,250

60
While you are out of your house, a burglar breaks
down a door and steals your television set and
your watch. The TV has a replacement value of
800 and an Actual Cash Value of 500. Your
watch has a replacement value of 2500 and an
Actual Cash Value of 1500. It costs 500 to
repair the door.
  • 1,750 D. 2,300
  • 2,000 E. None of the above
  • 2,250

61
Your neighbor was over in your yard enjoying a
backyard fire you had started. Your neighbor
started running around to get away from a wasp,
when he falls into the fire, burning himself. He
incurs 15,000 in medical bills. He sues you,
but you are not held liable for his injuries.
  • 0 D. 15,000
  • 750 E. None of the above
  • 1,000

62
Your neighbor was over in your yard enjoying a
backyard fire you had started. Your neighbor
started running around to get away from a wasp,
when he falls into the fire, burning himself. He
incurs 15,000 in medical bills. He sues you,
but you are not held liable for his injuries.
  • 0 D. 15,000
  • 750 E. None of the above
  • 1,000

63
You fall asleep while smoking in bed, and wake up
on fire. Although you escape, your house burns
to the ground. The replacement cost of your
house is 120,000, the ACV is 90,000. The
replacement cost of your personal property is
60,000, the ACV is 40,000. You incur 30,000
in medical bills for skin grafts.
  • 0 D. 165,000
  • 129,750 E. None of the above
  • 139,750

64
You fall asleep while smoking in bed, and wake up
on fire. Although you escape, your house burns
to the ground. The replacement cost of your
house is 120,000, the ACV is 90,000. The
replacement cost of your personal property is
60,000, the ACV is 40,000. You incur 30,000
in medical bills for skin grafts.
  • 0 D. 165,000
  • 129,750 E. None of the above
  • 139,750
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