Sid is confused about two home value concepts, one being market valueand the other replacement cost. You tell him that the market value of his home is the price he would get for his home on the real estate market, which includes the land. Replacement cost covers the cost to rebuild and does not include his land. For example, he may be able to sell his home for $750,000, but it would cost $500,000 to rebuild (i.e. to replace). Sid's home was recently hit by a large storm that caused tremendous damage. Although Sid owns a replacement cost policy, he is not fully covered as he has not maintained the 80% coverage amount on the insurance policy. His home has a replacement costof $500,000, but his insurance coverage totals $375,000. The damage from the storm totalled $125,000 to his home. How much will the insurance company pay for the damages?

1. $117,188
2. $87,455
3. $93,750
4. $100,000
5. $125,000