New Jersey Real Estate License Exam Practice Question
The insurance premium on a commercial property is $9,000. It is due on January 1 and was paid in advance. The sale of the property closed on July 16. Assuming a 360-day year and the buyer paying for the day of closing, what is the buyer's prorated share of the premium at closing?
Correct Answer: B
Rationale: To determine the buyer's prorated share of the insurance premium, first calculate the daily cost of the premium. The annual premium of $9,000 divided by 360 days equals $25 per day. The buyer is responsible for the premium from July 16 until the end of the year, which is 168 days (July 16 to December 31). Multiplying 168 days by $25 results in $4,200. However, since the buyer pays for the day of closing, we include July 16, leading to 169 days. Thus, 169 days multiplied by $25 equals $4,225.
Now, reviewing the options:
- A ($4,126) is too low, likely miscalculating the days.
- C ($4,860) and D ($4,876) do not align with the correct daily rate and the total days calculated.
Therefore, B ($4,160) correctly reflects the prorated share based on the accurate daily rate and total days.
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