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Alla [95]
2 years ago
12

The Tax Reform Act of 1986 eliminated the deductibility of interest payments on consumer debt (mostly credit cards and auto loan

s) but maintained the deductibility of interest payments on mortgages and home equity loans. What do you think happened to the relative amounts of borrowing through consumer debt and home equity debt
Business
1 answer:
liraira [26]2 years ago
6 0

Answer:

what is the question?

Explanation:

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Mr. Isaac is lending Gh₵20000 to Mr. Hayford, to be repaid over five years. Mr. Isaac would like to effect a policy on Mr. Hayfo
Alla [95]

Question:

Mr. Isaac is lending Gh₵20000 to Mr Hayford, to be repaid over five years. Mr Isaac would like to effect a policy on Mr Hayford’s life to cover the loan should Mr Hayford die. Mr Hayford would like to insure Mr Isaac’s life just in case he dies and the beneficiaries of his will insist that the loan be repaid early.

(a)​ What is the extent of insurable interest in each case?

(b) ​Consider any necessary action if the loan was later repaid earlier than anticipated what happens to the policy?

Answer:

To answer the question (a), one must first understand the concept of <em>Insurable Interest.</em>

A policyholder is said to have an insurable interest in a subject matter whenever the subject matter of a contract provides some financial gain to them and would lead to a financial loss if damaged, destroyed, stolen or lost.

For example, if I purchase a car for my use for $10,000, theft of or damage to that car will translate to financial loss to me. Therefore, I have an insurance interest in the car. This qualified me to Insure the car against loss arising from any form of insurable damage, or theft.

In question (a) there are two cases.

<em>Case I - Mr Isaac would like to effect a policy on Mr Hayford’s life to cover the loan should Mr Hayford die.</em>

Mr Isaac, in this case, has full insurable interest on Mr Hayfords life. If Mr Hayford dies,  Mr Isaac will be put in a financial loss to the tune of Gh₵20000.

<em>Case II - Mr Hayford would like to insure Mr Isaac’s life just in case he dies and the beneficiaries of his will insist that the loan be repaid early. </em>

Mr Hayford does an insurable interest on Mr Isaac's life. This insurable interest arises due to the possibility (as given in the question) that Isaacs family have the power to request for the loan earlier than it ought to have been paid.

The insurable interest arises because paying back the loan earlier than anticipated, may put Mr Hayford in financial distress and may lead to financial and economic loss. If the loan is meant for the running of his business, the business may fold up, and he may forfeit all the assets of the business.

In a real-life scenario, this can all be prevented by ensuring that the terms of the loan are documented in a contract which must be ratified by both parties. In this contract, clauses preventing the lender from cutting short the tenure of the loan can be inserted. This is less expensive and easier to administer.

(b) In each of the cases above, if the loan is paid back earlier than anticipated:

i. Under duress from the family: The provision of the policy protecting the interest of Mr. Hayford kicks in and makes good the loss to mitigate it and terminates afterwards.

ii. By volition by Mr Hayford: The policy terminates immediately as the insurable interest he has on Mr Isaac's life becomes extinct.

Cheers!

6 0
3 years ago
Kordel Inc. acquired 75% of the outstanding common stock of Raxston Corp. Raxston currently owes Kordel $500,000 for inventory a
Nady [450]

Answer:

what amount of Raxston’s liability should be eliminated? d.$500,000

Explanation:

At different levels of the consolidation, certain intercompany payables and receivables balances must be eliminated. Eliminations are only required in the context of a consolidation where the trading parties are both included in a given consolidation.

8 0
3 years ago
What does it mean to capitalize interest
aniked [119]
Capitalized interest refers to interest that is added to some kind of debt and that is included in current balance accounts, as opposed to waiting to figure in the cost of interest.
6 0
3 years ago
Unemployment that occurs when worker's skills do not match the jobs that are available.
liberstina [14]

Answer:

b. structural unemployment

5 0
1 year ago
The CAPM is built on historic conditions, although in most cases we use expected future data in applying it. Because betas used
dimaraw [331]

Answer:

False

Explanation:

The reason is that the betas are calculated using the past data which means that the Capital asset pricing model solely rely on the past data which is not the strength of the CAPM. It is basically a weakness of the model so the statement is incorrect.

4 0
2 years ago
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