Refer to the original data in Problem 18-33. Fred Morton has just purchased a life insurance policy from Porter with premiums equal to $1,500 per year.

Required:

1. Assume Fred holds the policy for one year and then drops it. What is his contribution to Porter’s operating income?

2. Assuming Fred holds the policy for three years, what is his contribution to Porter’s Operating income in the second and third years? Over a three-year period? What implications does this hold for Porter’s efforts to retain policyholders?

LO1