EspañolAvicenna, a major insurance company, offers five-year life insurance policies to 65-year-olds. If the holder of one of these policies dies before the age of 70, thecompany must pay out $23,900 to the beneficiary of the policy. Executives at Avicenna are considering offering these policies for $956 each. Suppose that foreach holder of a policy there is a 4% chance that they will die before the age of 70 and a 96% chance they will live to the age of 70.If the executives at Avicenna know that they will sell many of these policies, should they expectto make or lose money from offering them? How much?To answer, take into account the price of the policy and the expected value of the amount paidout to the beneficiary.Avicenna can expect to make money from offering these policies.In the long run, they should expect to make dollars on each policy sold.Avicenna can expect to lose money from offering these policies.In the long run, they should expect to lose dollars on each policy sold.O Avicenna should expect to neither make nor lose money from offering these policies.8Þ>

Generally, most insurance companies generally price their policies as the total premium collected -…

policies to 63-yea company must pay out $23,900 to the beneficiary of the policy. Executives at Avicenn each holder of a policy there is a 4% chance that they will die before the age of 70 am If the executives at Avicenna know that they will sell many of these policies, shor to make or lose money from offering them? How much? To answer, take into account the price of the policy and the expected value of the out to the beneficiary. O Avicenna can expect to make money from offering these policies. In the long run, they should expect to make dollars on each policy sold. O Avicenna can expect to lose money from offering these policies. In the long run, they should expect to lose dollars on each policy sold. fforing these

policies to 63-yea company must pay out $23,900 to the beneficiary of the policy. Executives at Avicenn each holder of a policy there is a 4% chance that they will die before the age of 70 am If the executives at Avicenna know that they will sell many of these policies, shor to make or lose money from offering them? How much? To answer, take into account the price of the policy and the expected value of the out to the beneficiary. O Avicenna can expect to make money from offering these policies. In the long run, they should expect to make dollars on each policy sold. O Avicenna can expect to lose money from offering these policies. In the long run, they should expect to lose dollars on each policy sold. fforing these

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

PE fund Red Llama buys a company (with no existing debt or cash) for $500 million, at a purchase EBITDA multiple of 10.0x. Considering the financing, they figure they need to keep an interest coverage ratio of 1.8 post buyout. At that level the cost of debt is 7.4%. They borrow up to their debt capacity. At the end of the 3-year period, they sell the company at an exit EBITDA multiple of 12.0x. However, EBITDA has not changed at all. Capital expenditure and working capital investment are minimal and there is no dividend payment. All free cash flows are used to pay down debt. As a result, PE fund has paid off $60 million worth of debt during the 3-year period. What’s the EBITDA of Red Llama?
am. 336.
Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $90,000. HPB will need it for only 3 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 3 years with $10,000 lease payments at the end of each year. HPB's cost of debt is 10%. Answer the following questions. (Hint: See Table 19-1.) What is the Year-1 imputed interest expense? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What lease liability must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What right-of-use asset must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. $ $
am. 158.
be before you have enough to buy the car? 10. Calculating Present Values Imprudential, Inc., has an unfunded pension liability of $645 million that must be paid in 25 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 5.5 percent, what O 2 the present value of this liability? thot vou1
6. Homes-R-Us is offering free credit on a new $200,000 home. You pay $40,000 down and then $16,000 a year for the next 10 years. We-Build'em-Better does not offer free credit but will give you $40,000 off the list price. a. If the discount rate is 5% per year, which company is offering the better deal? b. If the discount rate is 8% per year, which company is offering the better deal? Compare your answers to (a) and (b). Why do you think you are getting those results? c.
Vijay
17. Bahati Zuri obtained an installment loan for $25,000 so he could be a partner in a new restaurant. Barak Financial is offering a loan with an APR of 9% for 36 months and 5% down payment. Niya Credit Union is offering a loan with an APR of 8% for 24 months and 10% down payment. How much does Bahati save by taking the loan that costs the least? Use the Monthly Payment on a Simple Interest Installment Loan of $100.
It is estimated that there are 35 deaths for every 10 million people who use airplanes. A company that sells flight insurance provides $100,000 in case of death in a plane crash. A policy can be purchased for $1. Calculate the expected value and thereby determine how much the insurance company can make over the long run for each policy that it sells. The expected value is $ (Round to the nearest cent.) ITS
the average insurance company premium cost is $500 and its target loss ratio is 75%. If this company utilizes a technology that decreases losses by 40%, how much should the average premium cost be with this new technology?
A company has a policy of requiring a rate of return on investment of 13%. Two investment alternatives are available but the company may choose only one. Alternative 1 offers a return of $30,000 at the end of year three, $60,000 at the end of year nine and $40,000 after eleven years. Alternative 2 will return the company $500 at the end of each month for the next eleven years. Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion.