FIN 300 FInal Exam

If you desire to have $20,000 for a down payment for a house in four years, what amount would you need to deposit today? Assume that your money will earn 4 percent.

$17,100 ( 20000 x value from chart)

Ben Collins plans to buy a house for $152,000. If the real estate in his area is expected to increase in value 3 percent each year, what will its approximate value be six years from now?

$181,488 ( 152000 x value from chart(1.194) )

Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $7,000 available each year for various school and living expenses. Use Exhibit 1-D. If he earns 5 percent on his money, how much must he deposit at the start of his studies to be able to withdraw $7,000 a year for three years?

$19,061 (7000 x value from chart)

Carla Lopez deposits $2,400 a year into her retirement account. If these funds have average earnings of 6 percent over the 40 years until her retirement, what will be the value of her retirement account?

$371,424 ( 2400 x value from chart)

Shaan and Anita currently insure their cars with separate companies, paying $890 and $695 a year. If they insure both cars with the same company, they would save 10 percent on their annual premiums. What would be the future value of the annual savings over 10 years based on an annual interest rate of 6 percent?

2089.19 First, add both their payments together (890+695=1585), then calculate 10% of that total to find their savings (1585/0.10=158.5), then take the 10% value, 158.5, and multiply it by the value on the chart (158.5 x 13.181= 2089.19)

Personal liability coverage does NOT cover:

A housekeeper.

All of the following are acceptable types of documentation for a household inventory except:

A listing of items and their details in your memory.

Frank, age 38, was killed in a car accident. Which of the following riders provided an additional benefit for his heirs?

Accidental death benefit

Which of the following is incorrect?

All disability policies pay you if you cannot work at your regular job.

The most common risks are:

All of these are common risks

Which of the following is correct about your health plan's summary plan description?

All of these are correct.

Homeowner's insurance typically covers all of the following except:

All of these are covered.

The duration of benefits for a disability income insurance plan can be:

All of these are possibilities.

Which of the following questions should one ask when developing a risk management plan?

All of these questions should be asked when developing a risk management plan.

Who is most likely to use a home health care agency?

An elderly neighbor.

Medical payments coverage applies to medical expenses of:

Anyone who is injured in your vehicle, including you.

This health insurance provision lets your insurer make direct payments to your doctor or hospital.

Assigned benefits

Nancy is studying the health insurance plan options offered by her employer. She wants a policy that will have the insurance pay a percentage of her medical expenses after she meets her deductible. She should review the:

Coinsurance.

The insurance that helps pay hospital, surgical, medical, and other bills with a low deductible is known as a(n):

Comprehensive major medical policy.

Albert left his vehicle parked on the street in the front of his house when he went on vacation. While he was gone, his street flooded and his car was severely damaged. This damage would be covered under his:

Comprehensive physical damage coverage.

Henry was driving at dusk and hit a deer running across the road. His damage would be covered under his:

Comprehensive physical damage coverage.

Miguel is concerned that the health insurance option he is considering plays upon unrealistic fears. He is most concerned about a:

Dread disease policy.

When Stanley was visiting Elaine, he tripped on her front porch step and sprained his ankle. His injuries were covered by:

Elaine's medical payments coverage.

Under the Patient Protection and Affordable Care Act of 2010, which of the following is NOT correct?

Employers must offer continuing coverage through COBRA for up to 24 months after you leave your job.

Jacob is concerned that his out-of-pocket health care expenses will be quite high, so he is considering adding contributions to a tax-free account that he can use with his high-deductible policy to cover catastrophic expenses. What kind of plan does he have?

HSA

Cindy was contacted by her home insurance agent to discuss ways to decrease her premium. Which of the following should NOT reduce her premium?

Increasing the amount of coverage

An insurance company will:

Insure pure risk, but not speculative risk.

A provision in a health insurance policy that sets specific levels of repayment for certain services is called a(n):

Internal limit.

This health insurance provision sets specific levels of repayment for certain services.

Internal limits

Which of the following should reduce your auto insurance premium?

Maintaining good grades in college

Jack needs comprehensive medical coverage. However, his income is very low. What plan should he investigate?

Medicaid

Jeanne wants to purchase a life insurance policy with guaranteed premiums. What kind of policy would she want to purchase?

Nonparticipating policy

Which of the following is correct?

One question that should be asked when developing a risk management plan is "What do I need to insure?"

Barbara left a skateboard on her front steps. A windstorm swept the skateboard up and the skateboard crashed through her window. The windstorm was a:

Peril

The type of health insurance coverage that may cover routine doctor visits, X-rays, and lab tests is:

Physician expense.

Yvonne's employer offers a health plan that has a group of doctors and hospitals that agree to provide specified medical services to members at prearranged fees. This health plan offers some flexibility since members can either visit a physician from a list or go to their own doctors. What kind of plan does her employer offer?

Preferred provider organization (PPO)

All else held constant, which of the following is typically true about an elimination period?

Premiums for a plan with an elimination period of 90 days will be less than premiums for a plan with an elimination period of 60 days.

Patrick has an old car and wants to keep his insurance costs down, but he wants coverage in case he damages the property of others, including street signs and telephone poles. In order to minimize the financial impact of an accident he may cause, he should, at a minimum, carry which type of insurance?

Property damage liability coverage

Madeline had a severe allergy attack and crashed her car into a telephone pole while sneezing. The damage to the telephone pole would be covered under Madeline's:

Property damage liability coverage.

Which of the following is NOT correct about renter's insurance?

Renter's insurance covers the building and other structures on the site.

Which of the following is NOT one of the commonly used general risk management techniques?

Risk maximization

If you choose to insure your home or your vehicle, you are using:

Risk shifting.

Mark was severely injured while on vacation and expects to be unable to work for at least 12 months. Because of his injury, he should expect to be eligible for disability income from:

Social Security.

Fran is interested in purchasing a major medical policy that limits the total out-of-pocket amount that she will have to pay. She should consider a:

Stop-loss provision.

The type of health insurance coverage that may specify the maximum payment amount for each type of operation is:

Surgical expense.

Wanda Sotheby purchased 175 shares of Home Depot stock at $52 a share. One year later, she sold the stock for $61 a share. She paid her broker a commission of $45 when she purchased the stock and a commission of $52 when she sold it. During the 12 months she owned the stock, she received $140 in dividends. Calculate Wanda's total return on this investment.

Total cost of purchase = (Price per share × Number of shares) + Commission = ($52 × 175) + $45 = $9,145 Total sale proceeds = (Price per share × Number of shares) − Commission = ($61 × 175) − $52 = $10,623 Total return = Dividends + Capital gain = $140 + ($10,623 − $9,145) = $1,618

Megan wants to purchase a type of whole life insurance policy that will allow part of her premium to be invested in stock, bonds, or money market funds. Which of the following policies should she buy?

Variable life

Which of the following is NOT an underlying cause of high health care costs?

Victims of accidents and crimes require fewer emergency medical services than in the past.

Bill is worried about being able to pay his premium if he is totally and permanently disabled before age 60. Which of the following riders should he consider?

Waiver of premium disability benefit

If you have a loss due to a flood:

You must have already purchased special coverage if you live in an area that has frequent floods in order to be covered.

When Carolina's house burned down, she lost household items worth a total of $125,000. Her house was insured for $225,000, and her homeowner's policy provided coverage for personal belongings up to 70 percent of the insured value of the house. a. Calculate how much insurance coverage Carolina's policy provides for her personal possessions. b. Will she receive full payment for all of the items destroyed in the fire?

a) 157,500 (insured value of 225,000 x 70% aka 0.70) b) Yes, because her stuff was 125,000 and insurance will cover up to 157,500

Becky's comprehensive major medical health insurance plan at work has a deductible of $850. The policy pays 80 percent of any amount above the deductible. While on a hiking trip, Becky contracted a rare bacterial disease. Her medical costs for treatment, including medicines, tests, and a six-day hospital stay, totaled $9,093. A friend told her that she would have paid less if she had a policy with a stop-loss feature that capped her out-of-pocket expenses at $4,000. a. Calculate the total amount Becky would pay under the current policy. b. Would a $4,000 stop-loss provision on her current policy have reduced Becky's cost for this illness?

a. Co-insurance cost = (Claim amount − Deductible) × (1 − 0.80)= ($9,093 − $850) × 0.20= $1,648.60 Total personal cost = Deductible + Co-insurance cost= $850 + $1,648.60= 2,498.60 b. Since the personal cost was less than $4,000 the stop-loss provision would not have reduced Becky's cost.