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 6.7%, what is the present value of John's future annual earnings? (Round your answer to the nearest cent.)
$ ______________

Rounding up to the next $50,000, how much life insurance should he buy? (Round your original answer to the nearest $50,000.)
$ ?______________

Answer 1

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

PV= 37000*((1-(1+ 6.7/100)^-35)/(6.7/100))

PV = 495173.49

Insurance amount to buy = 500000