Show all work and formulas 3) After Thanksgiving 2016, Jack Hirsh returned to hi
ID: 2595269 • Letter: S
Question
Show all work and formulas
3) After Thanksgiving 2016, Jack Hirsh returned to his home to find that his TV-DVD unit was stolen. He bought this set for $950 in December 2011. He was somehow relaxed, thinking that his good property insurance would replace the set with a new one, but his insurance agent told him that according to the office records, the value of his set would have depreciated to zero by December, 2020, and therefore the insurance would have to pay less than the replacement value (RV). Calculate:
a) What Jack would wish to recieve (RV)
b) What the insurance would be willing to pay (ACV)
c) The difference between the two values. Given that the CPI's for 2011, 2016 are 140.5, 161.2 respectively.
Explanation / Answer
Replacement Value = Current Replacement Price of TV-DVD Unit (It means that TV-DVD Unit costing $950 in Dec 2011 would cost $1,089.96 in 2016.
CPI @ 2016 = 161.2
CPI @ 2011 = 140.5
A) Jack would wish to receive (Replacement Value) =( 161.2/140.5 ) * $ 950
= $ 1,089.96 Ans.
B) Insurance would be willing to pay (Actual Cost Value (ACV)) = Replacement Value * Percent of useful life left of the Unit..
Actual cash value is the amount equal to the replacement value minus depreciation of a damaged or stolen property at the time of the loss.
= $ 1,089.96 * (4/9)
= $ 484.43 Ans.
C) Difference between the two values = $ (1,089.96 - 484.43)
= $ 605.54 Ans.