Question

Sally brings home $50,000 a year to help provide financial support to her family, comprised of her husband and two children. She is considering purchasing life insurance. Using the earnings multiple approach, how much coverage should she purchase using a discount rate of 5% to replace 10 years of earnings.

Answer 1

$386,080

Step-by-step explanation:

In order to find the Coverage of sally's investment in life insurance for 10year can be done by making 10-year table

Year Cashflow Discount factorI5%) Present Value

$ $ $

1 50,000 0.9524 47,620

2 50,000 0.9070 45,350

3 50,000 0.8638 43,190

4 50,000 0.8337 41,135

5 50,000 0.7835 39,175

6 50,000 0.7462 37,310

7 50,000 0.7107 35,535

8 50,000 0.6768 33,840

9 50,000 0.6446 32,230

10 50,000 0.6139 30,695

NPV = Sum of all present values

NPV = $386,080