Question

On May 1, Mr. Robinson bought a two-year homeowner's policy that insured 90% of his home, which was appraised at $200,000. In December, he sold his house, and the buyers assumed the remainder of the existing policy, which had cost $0.50 per $100 of insured value per year. The closing date of February 28 was assigned to the sellers. How much is owed to whom for the prorated remainder of the homeowner's insurance?

a) $500 to Mr. Robinson
b) $1,000 to Mr. Robinson
c) $250 to Mr. Robinson
d) $750 to Mr. Robinson

Answer 1

To calculate the prorated amount owed for the homeowner's insurance policy, you need to calculate the number of days remaining in the policy and divide the total cost of the policy by the number of days in two years. Then, multiply this by the number of days remaining in the policy. Plugging in the values, Mr. Robinson is owed $374.48.

Step-by-step explanation:

To determine how much is owed for the prorated remainder of the homeowner's insurance, we need to calculate the number of days from May 1st to February 28th. This is a span of 303 days in a non-leap year. Since the policy covers two years, we can calculate the prorated amount by dividing the total cost of the policy by the number of days in two years, and then multiplying by the number of days left in the policy.

The total cost of the policy is $0.50 per $100 of insured value per year, and since Mr. Robinson's home is insured at 90% of $200,000, the insured value is $180,000. So, the total cost of the policy is $0.50 * ($180,000 / $100) = $900 per year.

To calculate the prorated amount owed, we can use the formula: prorated amount = (total cost of policy / days in two years) * days remaining in policy. Plugging in the numbers, we get: prorated amount = ($900 / 730) * 303 = $374.48. Therefore, Mr. Robinson is owed $374.48 for the prorated remainder of the homeowner's insurance.