Tracey, age 47, sat down in her living room to try to make an assessment of...

Tracey, age 47, sat down in her living room to try to make an assessment of how much life insurance to purchase using the “human life value approach”. Tracey expects that her average annual earnings over the next 20 years will be $40,000. $20,000 of this amount will be available each year for the support of Tracey’s family. Tracey will be earning this income for 20 more years and she feels that 5 percent is the appropriate discount rate to apply. If the present value amount of a single dollar payable for 20 years using a discount rate of 5 percent computes to $12.46. What is Tracey’s human life value?

	A.	$184,600
	B.	$249,200
	C.	$360,800
	D.	$400,000

risk insurance and magement

Expert Solution

Tracey 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 the family. Tracey will be earning this income for 20 more years and she feels 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.

Therefore, Tracey’s human life value = $12.46 * $20000

= $249,200

So, the answer is B

jeff jeffy answered 2 years ago

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