Question

In: Operations Management

Bank One Mortgage Company requires Sue to purchase insurance for her mortgaged house. Sue bought her...

Bank One Mortgage Company requires Sue to purchase insurance for her mortgaged house. Sue bought her house for $200,000. She made a $25,000 down-payment. She mortgaged the remainder, i.e., $175,000. The mortgage company required her to secure $175,000 of home-owner’s insurance. Sue obtains a $300,000 valued insurance policy. Sue’s house is accidentally destroyed by fire. Which of the following best describes how the insurance monies will be paid, if at all?

A.) One Mortgage Company will receive $175,000 and Sue will receive $25,000.

B.) One Mortgage Company will receive $275,000 and Sue will receive $25,000.

C.) One Mortgage Company will receive $175,000 and Sue will receive $125,000.

D.) None of the above.

Solutions

Expert Solution

C) one mortgage company will receive $175000 and Sue will receive $25000 .

This is because the value of the house bought was only $200000 even though she took 300000 worth policy


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