One of the methods for deciding how much life insurance to buy is to consider how...
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One of the methods for deciding how much life insurance to buy is to consider how much future income would be lost in the event of a premature death and buy enough life insurance today to replace that lost future income. This is done by calculating the total value of after-tax income received into the future and calculating the value of that future amount in today's dollars. For this question, assume that incomes grow at 2% compounded annually and the inflation-for the purpose of discounting back from a future value-is also 2%. For your answers below, use this information: Cathy's after-tax income is $73,726 and she plans to work another 20 years before retiring. Gwenn's after-tax income is $78,903 and she plans to work another 30 years before retiring. 18. How much will Cathy earn by the time she retires? $_ PV PV 19. How much will Gwenn earn by the time she retires? $ FV PV FV PV Rate FV Rate FV 20. How much life insurance should Cathy have to replace her future income if she were to die today?$ Rate Periods Periods Rate Periods Payment 21. How much life insurance should Gwenn have to replace her future income if she were to die today?$ Payment Periods Payment Payment One of the methods for deciding how much life insurance to buy is to consider how much future income would be lost in the event of a premature death and buy enough life insurance today to replace that lost future income. This is done by calculating the total value of after-tax income received into the future and calculating the value of that future amount in today's dollars. For this question, assume that incomes grow at 2% compounded annually and the inflation-for the purpose of discounting back from a future value-is also 2%. For your answers below, use this information: Cathy's after-tax income is $73,726 and she plans to work another 20 years before retiring. Gwenn's after-tax income is $78,903 and she plans to work another 30 years before retiring. 18. How much will Cathy earn by the time she retires? $_ PV PV 19. How much will Gwenn earn by the time she retires? $ FV PV FV PV Rate FV Rate FV 20. How much life insurance should Cathy have to replace her future income if she were to die today?$ Rate Periods Periods Rate Periods Payment 21. How much life insurance should Gwenn have to replace her future income if she were to die today?$ Payment Periods Payment Payment
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To calculate the values we can use the present value PV and future value FV formulas assuming a 2 in... View the full answer
Related Book For
Personal Financial Planning
ISBN: 9780357438480
15th Edition
Authors: Randy Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Posted Date:
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