Cathy's apartment was broken into and her two-year-old sound system was taken.Cathy had paid $1,400 for the system,but it will cost $1,800 to replace the unit.She has a homeowner's policy with $20,000 coverage for personal property,a $200 deductible,and actual-cash-value coverage.How much will Cathy receive from the insurance to cover this loss assuming the life expectancy of the system is ten years?
A)$920
B)$1,120
C)$1,200
D)$1,800

Question

Quizplus · Accepted Answer

The insurance covers the actual cash value, which accounts for depreciation. Since the sound system was 2 years old with a 10-year life expectancy, it had lost 20% of its value. The original cost was $1,400, so the depreciated value is $1,400 - ($1,400 * 20%) = $1,400 - $280 = $1,120. After subtracting the $200 deductible, Cathy will receive $1,120 - $200 = $920.

Cathy's Apartment Was Broken into and Her Two-Year-Old Sound System