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disa [49]
2 years ago
15

In 2008, 1 in approximately every 200 cars in the United States was stolen. Beth owns a car worth $20,000 and is considering pur

chasing an insurance policy to protect herself from car theft. For the following questions, assume that the chance of car theft is the same in all regions and across all car models.
Requried:
a. What should the premium for a fair insurance policy have been in 2014 for a policy that replaces Beth’s car if it is stolen? (Round up to three decimal places.)
b. Suppose an insurance company charges 0.6% of the car’s value for a policy that pays for replacing a stolen car. How much will the policy cost Beth?
c. Will Beth purchase the insurance in part b if she is risk-neutral?
d. Discuss a possible moral hazard problem facing Beth’s insurance company if she purchases the insurance.
Business
1 answer:
rjkz [21]2 years ago
3 0

Answer:

A) The amount of the premium in fair insurance policy that replaces Beths car, must be equal to the probability or expectation of claim of car theft.

Therefore, the Premium amount = 20000 x (1/200)

= 20000 (0.005)

= $100

B) If an Insurance company charges 0.6% for replacing a stolen car, then the policy will cost beth:

20000* 0.6%

= 12,000/100

= $ 120  

C) To be risk-neutral means to be indifferent to the risk. This means that Beth would be indifferent. She most likely will be focused on maximizing value for money. In other words, she will NOT pay for the insurance policy in part b because part A provides her with the exact (or fair) premium for her insurance.

D) The moral hazard problem is this, people tend to become more careless with an insurance policy in place. This moral hazard arises form the knowledge that there is an insurance policy that caters to their risks.

As a matter of practice, therefore, insurance companies factor this increased risk into their premiums. Where the premium was supposed to be $100, they may charge $120.

In summary, it means that Beth most likely will move from becoming risk neutral to becoming (to a certain degree) more risk loving.

Cheers!

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The following are the current? month's balances for ABC Financial? Services, Inc. before preparing the trial balance. Accounts P
ale4655 [162]

Answer:

B. $ 23 comma 000 $23,000

Explanation:

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Total Debit = Total Credit

40,500 = $17,500 + Common stock value

Common stock value = $40,500 - $17,500 = $23,000

<u>Accounts with Credit balances</u>

Accounts Payable       $7,000

Revenue                      $6,000

Common Stock              ?

Notes Payable              $4,500

Total Debit balances                    $17,500

<u>Accounts with Debit balances</u>

Cash                             $3,000

Expenses                     $16,500

Furniture                      $10,000

Accounts Receivable  <u>$11,000</u>

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6 0
3 years ago
Johnson Trucking Company wants to determine a fuel surcharge to add to its customers' bills based on the number of miles driven
BARSIC [14]

Answer:

Variable cost per unit= $1.16 per mile

Explanation:

Giving the following information:

January 16,200 $22,650

February 17000 $23,250

March 18400 $25,450

Apri 16500 $22,875

May 17400 $23,550

June 15300 $21,850

<u>To calculate the variable cost per mile under the high-low method, we need to use the following formula:</u>

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

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Variable cost per unit= $1.16 per mile

7 0
2 years ago
Dinklage corp. has 6 million shares of common stock outstanding. the current share price is $84, and the book value per share is
Ann [662]

The answers to the questions are given below.

A. The company's capital structure weights on a book value basis are:

  • Equity = 9.84%
  • Debt = 90.16%

B. The company's capital structure weights on a market value basis are:

  • Equity = 64.55%
  • Debt = 35.45%

<h3>What is the calculations about?</h3>

A. The company's capital structure weights on a book value basis are:

Firm's Outstanding common stock = 6 million shares

Current share price = $84

Book value per share = $5

Hence, Total equity book value = $30 million (6,000,000 x  $5)

Total equity market value = $504 million (6,000,000 x $84)

First bond's face value = $145 million

Coupon rate = 5%

Selling price = 95% of par

Market value of first bond = $145 x 95%

                                    = $137.75 million

The Second bond's face value = $130 million

Coupon rate = 4%

Market value = $130 x  107% = $139.1 million

Total market value of bonds = $276.85 million ($137.75 + $139.1)

Book value of bonds = $275 million ($145 + $130)

Therefore, the company's capital structure by book value:

Equity = $30 million

Debt = $275 million

So, Total firm's value = $305 million

Hence:

Equity = $30/$305 x  100 = 9.84%

Debt = $275/$305 x  100 = 90.16%

B. Hence company's capital structure by market value:

Equity = $504 million

Debt = $276.85 million

Total firm's value = $780.85 million

Therefore:

Equity = $504/$780.85 x 100 = 64.55%

Debt = $276.85/$780.85 x  100 = 35.45%

See full question below

Dinklage Corp. has 6 million shares of common stock outstanding. The current share price is $84, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $145 million, a coupon rate of 5 percent, and sells for 95 percent of par. The second issue has a face value of $130 million, a coupon rate of 4 percent, and sells for 107 percent of par. The first issue matures in 24 years, the second in 9 years. Both bonds make semiannual coupon payments.

Required:

a. What are the company's capital structure weights on a book value basis?

b. What are the company's capital structure weights on a market value basis?

Learn more about Equity  from

brainly.com/question/23546765

#SPJ1

4 0
1 year ago
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