Lynette VanWagoner purchased a life insurance policy to insure her mother Idon. Idon is currently 64. Insurance companies predict that women in her condition will live, on average, to be 81 years old. Lynette makes a one-time payment of $100,000 to purchase a life insurance policy on Idon's life. The policy provides for a $1,000,000 death benefit and a cash surrender value equal to the original $100,000 premium plus a 7 percent annual rate of return on the premium.
a. How much will Lynette receive after taxes if Idon dies in 14 years?
b. How much will Lynette receive after taxes if Idon dies in seven years?
c. How much will Lynette receive after taxes if Lynette decides to cash in the policy after four years when Idon is still living and Lynette's marginal tax rate is 28 percent?