Inflation is a vital concern to financial planning. It affects not only what we pay for our good s and services but also what we earn in our jobs. The amount of goods and services each dollar buys at a given time is:
Assume that fire destroys two rooms of furniture that were 6 years old and had an estimated useful life of 10 years. The replacement cost is $5,000. Therefore at the time of loss, the furniture was subject to an assumed physical depreciation of 60%, i.e., 3,000 in this case. Because the actual cash value is estimated at $2,000. So, the maximum insurer would have to pay is:
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