Question

4) Jihad Al Ghandour, age 45, would like to determine how much life insurance to purchase using the human life value approach. He assumes his average annual earnings over the next 20 years will be $40,000. Of this amount, $20,000 is available annually for the support of his family. Jihad will generate this income for 20 more years and he believes that 5 percent is the appropriate interest (discount) rate. The present value of one dollar payable for 20 years at a discount rate of 5 percent is $12.46. What is Jihad's human life value?

Answer 1

Given:- discount rate=5%,time=20 years,present value of one dollar at 5% discount rate for 20 years=12.46, Jihad's human life value is equal to future earnings required × PVAF @5% for 20 years accordingly we have, =$20000×$12.46=$249200.