Question

Just before his first attempt at bungee jumping, John decides to buy a life insurance policy. His annual income at age 30 is $37,000, so he figures he should get enough insurance to provide his wife and new baby with that amount each year for the next 35 years. If the long-term interest rate is 6.5%, what is the present value of John's future annual earnings?

Answer 1

$506,417.40

Step-by-step explanation:

Period (N)= 35

Rate (I/Y) = 6.5%

Payment (PMT) = $37,000

Future Value = -

Using the PV Function on Ms Excel

The Present value = PV(N, I/Y, -PMT)

The Present value = PV(35, 6.5%, -37,000)

The Present value = 506,417.3991

The Present value = $506,417.40

Thus, the present value of John's future annual earnings is $506,417.40