A contractor's license bond costs $450 annually for $15,000 coverage. If the contractor needs to increase coverage to $25,000 due to a claim, and the rate increases proportionally, what is the new annual cost?
Correct Answer
C) $750
Rate per $1,000 = $450 ÷ 15 = $30. New cost = $30 × 25 = $750 annually for $25,000 coverage.
Why This Is the Correct Answer
Use proportional rate calculation. Rate per $1,000 of coverage = $450 ÷ 15 = $30 per $1,000. New annual cost = $30 × 25 = $750. The rate stays constant at $30 per $1,000, so scaling up to $25,000 coverage directly yields $750.
Why the Other Options Are Wrong
Option A: $850
The $850 figure does not follow proportional scaling. It appears to add a flat $400 to the original premium rather than recalculating at the correct per-$1,000 rate. This approach has no mathematical basis in the problem.
Option B: $650
The $650 figure is incorrect. It may result from miscalculating the rate (e.g., dividing $450 by 10 instead of 15) or applying incorrect arithmetic. The actual rate is $30 per $1,000, giving $750 for $25,000 coverage.
Option D: $950
The $950 figure exceeds the correct answer and may come from using an incorrect rate or adding unnecessary surcharges. With proportional scaling at $30 per $1,000, $25,000 coverage costs exactly $750.
Memory Technique
Step 1: Find rate per $1,000 (divide old premium by old coverage in thousands). Step 2: Multiply that rate by new coverage in thousands. Two steps, done.
More California Questions
A Class C-10 electrical contractor has annual gross receipts of $3.2 million. What is the required bond amount under current California law?
Under B&P Code Section 7125.4, what is the fee for initial Home Improvement Salesperson registration?
According to B&P Code Section 7125, what is the maximum penalty the CSLB can impose for contracting without a license?
A home improvement contract for $8,500 requires a 3-day right to cancel notice. The contract is signed on Tuesday at 2 PM. When does the cancellation period expire?
A contractor employs 15 workers across multiple job sites. The total annual payroll is $850,000 with a workers' comp rate of 4.1%. If they self-insure with a deposit requirement of 125% of estimated annual premium, what deposit is required?
A C-10 electrical contractor wants to perform plumbing work valued at $8,000 as part of a larger electrical project. Is this permissible under CSLB regulations?
A homeowner discovers that an unlicensed contractor performed $25,000 worth of work on their property. Under B&P Code Section 7031, what remedy is available to the homeowner?
A Class B general building contractor wants to perform electrical work valued at $750. According to the B&P Code, this contractor:
A contractor's qualifying individual leaves the company. How many days does the contractor have to replace them before the license becomes invalid?
According to B&P Code Section 7031, what happens to a contractor's right to payment if they perform work while unlicensed?
People Also Study
Business & Financial Management
120 questions · 70% to pass
Contract Administration
60 questions · 70% to pass
Project Management
60 questions · 70% to pass
Related Study Resources
Previous Question
A Class B contractor wants to subcontract electrical work exceeding $500 to a Class C-10 electrical contractor. What is required under California law?
Next Question
A contractor's qualifying individual becomes permanently disabled. How long does the contractor have to replace them before the license becomes invalid?