Question

True or False: The multiple earnings approach to evaluate life insurance needs is the most accurate method to determine the amount of insurance needed. Actual cash value is defined as replacement cost minus depreciation. ( The rate of return on liquid assets is relatively high compared to other types of investments. C) A liquid financial asset can be quickly converted into cash, but there is often a large loss of value as a result of the quick conversion to cash. C.) If you buy a zero coupon bond, you pay a premium price, but the principle and the dividends will only be disbursed at bond maturity.

Answer 1

1) False

Explanation:  

This method is simple but it has shortcomings like it doesn’t measure non-wage value, it ignores potential wage increases and It also neglects factors such as debt (including a mortgage) and dependents.A better way to determine coverage amounts is called “Human Life Value”.While Human Life Value can be more complex to calculate than “multiple earnings,” it is considered a more accurate estimate.

2) True

Explanation:

  Actual cash value is computed by subtracting depreciation from replacement cost while depreciation is figured by establishing an expected lifetime of an item and determining what percentage of that life remains. This percentage, multiplied by the replacement cost, provides the actual cash value.

3) False

Explanation:

Liquid Investments are investments which are readily convertable into Cash and includes cash. Comparitevely Liquid Investments are less riskier than all other investments. When the risk is low the return will be low.

4) False

Explanation:

Liquid Investments meant to created to quickly convert into cash.The asset shouldn't lose any (or much) of its value in the process. So The above statement means nothing.

5) False

Explanation:

Zero coupon bonds will be purchased at discounted price not on premium price.