Question

Jonathan earns $90,000 a year, is 44 years old, and anticipate working until age 64. He has asked you how much life insurance he should consider using the human life value approach. He would like to take into account inflation, and wants the amount of his coverage based on inflation eroding buying power over time. Using a rate or return assumption of 6%, and inflation rate of 3%, approximately how much life insurance should Jonathan obtain?

A: $1,310,000

B: $1,390,000

C: $1,450,000

D: $1,260,000

Answer 1

Year	Cash Flow	Discounting Factor [1/(1.06^year)]	PV (cash flow*discounting factor)
1	90000	0.943396226	84905.66038
2	92700	0.88999644	82502.66999
3	95481	0.839619283	80167.68876
4	98345.43	0.792093663	77898.79191
5	101295.79	0.747258173	75694.10912
6	104334.67	0.70496054	73551.82301
7	107464.71	0.665057114	71470.16765
8	110688.65	0.627412371	69447.42705
9	114009.31	0.591898464	67481.93383
10	117429.59	0.558394777	65572.06778
11	120952.47	0.526787525	63716.25454
12	124581.05	0.496969364	61912.96432
13	128318.48	0.468839022	60160.71061
14	132168.03	0.442300964	58458.04899
15	136133.08	0.417265061	56803.57591
16	140217.07	0.393646284	55195.92753
17	144423.58	0.371364419	53633.77864
18	148756.29	0.350343791	52115.84151
19	153218.98	0.33051301	50640.86486
20	157815.54	0.311804727	49207.63284
		PV = (sum of PVs)	1310537.939

Correct Answer is A. $1,310,000

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