1. Consider Ms. Pangolin who pays $1,500 in auto insurance premiums for the year. Assume that she is in accident and the insurance company has to pay $35,000 to cover liability and repair the car. The insurance company expects to pay a total of $750,000 in claims for the year with respect to the group of policy owners of which this individual is a member. Business expenses for the year are 175,000. Investment earnings on premium received are $35,000. How many insurance policies must the insurance company sell to break even (that is, to earn $0 in profit)? Assume that all policies are sold for a $1,500 premium [6 pts] (Show your calculations).

2. Consider the loss from fire damage of furniture which cost $6,000 three years ago and has an expected life of ten years. This furniture would cost $9,000 to purchase today. Under a replacement cost policy, how much would the insurance company pay you for this loss? [2 pts] (Show your calculations).