AFSB 151 - Application Questions (Chapters 1-8) with complete questions and answers

Akiem owns a small hardware business. He plans to hire a contractor to build a new retail building for his business. Akiem contacted his financial planner for advice on the type of bods he should require from the contractor to be assured that the work will be completed properly, according to the specifications and in compliance with city building codes. Akiem believes that personal suretyship, backed by his brother (the surety), would be sufficient for his small business bond needs. What advice and justification should the financial manager give Akiem regarding personal versus corporate suretyship? Akiem's financial planner should explain to him that a person suretyship with his brother as surety is a risky prospect. If the contractor (principal) and his brother both become bankrupt, he could have little recourse for completing his building or recovering his lost funding, and this could lead to conflicts with his brother. He should explain that corporate suretyship may seem expensive, but the premiums, and corporate sureties have expert knowledge and are controlled by laws to protect obligees form contractors' defaults. A corporate surety would evaluate the contractor (principal) to determine whether he merits their backing and whether he has sufficient capital for completing the job. A corporate surety would ensure that the building is completed as required. Jacqueline is hiring a contractor to build a new home on her property after her former home was destroyed by a disaster that struck her town. She is leery of contractors that are actively soliciting building project in the disaster area, so she considered requiring that her selected contractor provide construction contract bonds. Indicate whether this type of bond would be a statutory or non statutory bond, and explain why Jacqueline might forgo this bond requirement if she confirms that the contractor is bonded for commercial projects. The bond that Jacqueline might require is a non statutory bond because it is not required by any statute or regulation, and it is required by an individual in the private sector. Jacqueline may forgo this bond requirement if she confirms that the contractor is bonded for commercial projects because she may believe that a performance guarantee is not needed for a contractor that has qualified for a surety bond. Russell is a producer who has been given power of attorney to execute surety bonds for Andressen Surety, Inc. Scott, Russell's former schoolmate, owns Rooferenum, LTD, a local roofing contractor. Scott requests that Russell obtain a performance bond form Surety, Inc., for contracts Rooferenum will perform for the city. In the past, Scott had confided to Russell that, while operating under different business names, he had numerous failed roofing operations and defaulted on contracts. Explain whether Russell should execute a bond for Rooferendum and any responsibility that Russell owes to Andreeseen Surety to share details of Scotts's previous failed roofing operations on a bond application. Russell should not execute a bond for Rooferendum because it likely would not fall within his power of attorney. As a surety producer, Russell owed a responsibility to Andreessen's not to abuse his underwriting authority. In a bond application, he should fairly and accurately develop all data on Scott and his former