uestion Completion Status: QUESTION 4 1 points Blake, who is married and the fat
ID: 2539402 • Letter: U
Question
uestion Completion Status: QUESTION 4 1 points Blake, who is married and the father of two, is 30 years old and expects to continue to work until the age of 65. He earns $85,000 per year and expects annual salary increases of 2% over his working life. He also expects inflation to be 3% during that time. His personal risk-free discount rate is 6%, his consumption is 20%, and his marginal tax rate is 28%. Determine Blake's human life value. o $1,328,284 o $1,065,564 $944,615 $1,133,820 QUESTION 5 1 points Loss severity is the: Probability that a liability judgment may exceed an individual's net worth. Probable size of a loss that may occurExplanation / Answer
Ans is C=944,615
Net Income =Yearly Income-Consumption -Taxes
=[85000-(85000*20%) ]-28% tax
=68000-17040=48960
Human Life Value Approach Assumptions: Age at Time of Insurance Purchase: 30 Initial Income: $85,000.00 Number of Years of Working Life: 40 Increase in Income: 2.00% each year Discount Rate of Interest [Int.] = 6.00% Discount Factor Present Value Age Duration Anuual Income at Rate Int. Future Income 30 1 $48,960.00 0.943396226 $46,188.68 31 2 $49,939.20 0.88999644 $44,445.71 32 3 $50,937.98 0.839619283 $42,768.51 33 4 $51,956.74 0.792093663 $41,154.61 34 5 $52,995.88 0.747258173 $39,601.60 35 6 $54,055.80 0.70496054 $38,107.20 36 7 $55,136.91 0.665057114 $36,669.20 37 8 $56,239.65 0.627412371 $35,285.45 38 9 $57,364.44 0.591898464 $33,953.93 39 10 $58,511.73 0.558394777 $32,672.65 40 11 $59,681.97 0.526787525 $31,439.72 41 12 $60,875.61 0.496969364 $30,253.31 42 13 $62,093.12 0.468839022 $29,111.68 43 14 $63,334.98 0.442300964 $28,013.12 44 15 $64,601.68 0.417265061 $26,956.02 45 16 $65,893.71 0.393646284 $25,938.82 46 17 $67,211.59 0.371364419 $24,959.99 47 18 $68,555.82 0.350343791 $24,018.11 48 19 $69,926.94 0.33051301 $23,111.76 49 20 $71,325.48 0.311804727 $22,239.62 50 21 $72,751.98 0.294155403 $21,400.39 51 22 $74,207.02 0.277505097 $20,592.83 52 23 $75,691.16 0.261797261 $19,815.74 53 24 $77,204.99 0.246978548 $19,067.98 54 25 $78,749.09 0.232998631 $18,348.43 55 26 $80,324.07 0.219810029 $17,656.04 56 27 $81,930.55 0.207367952 $16,989.77 57 28 $83,569.16 0.195630143 $16,348.65 58 29 $85,240.55 0.184556739 $15,731.72 59 30 $86,945.36 0.174110131 $15,138.07 60 31 $88,684.26 0.16425484 $14,566.82 61 32 $90,457.95 0.154957397 $14,017.13 62 33 $92,267.11 0.146186223 $13,488.18 63 34 $94,112.45 0.137911531 $12,979.19 64 35 $95,994.70 0.130105218 $12,489.41 65 36 $97,914.59 0.122740772 $12,018.11 Current Life Insurance Need: $917,538.13 After inflation Value $945,064.27 approx(difference due to discounting) [917,538*(1.03)]Related Questions
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