Question

Dave and Ellen are newly married and living in their first house. The yearly premium on their homeowner’s insurance policy is $650 for the coverage they need. Their insurance company offers a discount of 8 percent if they install dead-bolt locks on all exterior doors. The couple can also receive a discount of 4 percent if they install smoke detectors on each floor. They have contacted a locksmith, who will provide and install dead-bolt locks on the two exterior doors for $110 each. At the local hardware store, smoke detectors cost $24 each, and the new house has two floors. Dave and Ellen can install them themselves.
a. Assuming their insurance rates remain the same, how many years will it take Dave and Ellen to earn back in discounts the cost of the dead-bolts?
b. How many years will it take Dave and Ellen to earn back in discounts the cost of the smoke detectors? (Round your answer to 2 decimal places.)
c. Would you recommend Dave and Ellen invest in the safety items, if they plan to stay in that house for about 5 years?

Answer 1

Answer:

The answers are:

A) 4.23 years

B) 1.08 years

C) Off course I would recommend Dave and Ellen to install these safety items, not only because they save money but also because they are very useful.

Explanation:

The cost of the deadlocks including installation is $110 for each exterior door ($220 total). The cost for installing smoke detectors is $24 for each floor ($48 total).

The discount that Dave and Ellen can get is

• $52 per year for installing the deadlocks
• $26 per year for installing the smoke detectors

A) It will take Dave and Ellen 4.23 years ($220/$52) to recover the money spent on the deadlocks.

B) It will take Dave and Ellen 1.08 years ("26/$24) to recover the money spent on the smoke detectors.