1. Sasha Underwood’s home in Los Angeles was recently gutted in a fire. Her living and dining rooms were completely destroyed, and the damaged personal property had a replacement value of $25,000. The average age of the damaged personal property was 5 years, and its useful life was estimated to be 15 years. What is the maximum amount the insurance company would pay Sasha, assuming that it reimburses losses on an actual cash-value basis?

2. Brandon Daugherty has a personal automobile policy (PAP) with coverage of $25,000/$50,000 for bodily injury liability, $25,000 for property damage liability, $5,000 for medical payments, and a $500 deductible for collision insurance. How much will his insurance cover in each of the following situations? Will he have any out-of-pocket costs?

a. Brandon loses control and skids on ice, running into a parked car and causing $3,785 damage to the unoccupied vehicle and $2,350 damage to his own car.

b. Brandon runs a stop sign and causes a serious auto accident, badly injuring two people. The injured parties win lawsuits against him for $30,000 each.

c. Brandon’s 18-year-old son borrows his car. He backs into a telephone pole and causes $450 damage to the car.

Following question is for students who take FIN 3633:

3. Ian and Elena Ballard both graduate students, moved into an apartment near the university. Elena wants to buy renter’s insurance, but Ian thinks they don’t need it because their furniture isn’t worth much. Elena points out that, among other things, they have some expensive computer and stereo equipment. To help the Ballards resolve their dilemma, suggest a plan for deciding how much insurance to buy, and give them some ideas for finding a policy.