Assume That the Physical Property of a Business Is Valued

question 42

Multiple Choice

Assume that the physical property of a business is valued at $50,000. The company's commercial property policy contains a coinsurance clause with a stated percentage of 80 percent. The company insures the property for $30,000 (75 percent of the specified minimum) . The company incurs a fire loss of $20,000. How much of the loss will the insurance company pay for?

• A) $0
• B) $15,000
• C) $20,000
• D) $10,000

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Definitions:

Annuity Due

A series of equal payments made at the beginning of consecutive periods over a fixed length of time.

Discount Rate

The interest rate used to discount future cash flows to their present value, often reflecting the cost of capital or risk level.

Cash Flow Stream

A series of cash inflows and outflows over a period, representing transactions or operations' financial impacts on a business.

Compounded Annually

The process by which an investment grows in value over time as interest is added to the principal amount each year, which then earns more interest.