Log in
Finance
1
answer
0
watching
52
views

Mary's replacement is unexpectedly hired away by another school, and Mary is asked to stay in her position for another three years. The board assumes the bonus should stay the same, but Mary knows the present value of her bonus will change. What would be ther present value of her deferred annunity?

Watch
1
answer
0
watching
52
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Casey Durgan
Casey DurganLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

1.Financial mangers make decisions today that will affect the firm in the future. The dollars used for investment expenditures made today are different from the cash flows to be realized in the future. What are these differences? What are some of the techniques that can be used to adjust for these differences?

The Time Value of Money

Submit a 4-5 page report based on the following problem:
Mary has been working for a university for almost 25 years and is now approaching retirement. She wants to address several financial issues before her retirement and has asked you to help her resolve the situations below. Her assignment to you is to provide a 4-5 page report, addressing each of the following issues separately. You are to show all your calculations and provide a detailed explanation for each issue.

Issue A:
For the last 19 years, Mary has been depositing $500 in her savings account , which has earned 5% per year, compounded annually and is expected to continue paying that amount. Mary will make one more $500 deposit one year from today. If Mary closes the account right after she makes the last deposit, how much will this account be worth at that time?

Issue B:
Mary has been working at the university for 25 years, with an excellent record of service. As a result, the board wants to reward her with a bonus to her retirement package. They are offering her $75,000 a year for 20 years, starting one year from her retirement date and each year for 19 years after that date. Mary would prefer a one-time payment the day after she retires. What would this amount be if the appropriate interest rate is 7%?

Issue C:
Mary’s replacement is unexpectedly hired away by another school, and Mary is asked to stay in her position for another three years. The board assumes the bonus should stay the same, but Mary knows the present value of her bonus will change. What would be the present value of her deferred annuity?

Issue D:
Mary wants to help pay for her granddaughter Beth’s education. She has decided to pay for half of the tuition costs at State University, which are now $11,000 per year. Tuition is expected to increase at a rate of 7% per year into the foreseeable future. Beth just had her 12th birthday. Beth plans to start college on her 18th birthday and finish in four years. Mary will make a deposit today and continue making deposits each year until Beth starts college. The account will earn 4% interest, compounded annually. How much must Mary’s deposits be each year in order to pay half of Beth’s tuition at the beginning of each school each year?

John is an attorney in a small firm, he is 32 years old and currently earning $78,000 a year. John must continue paying back his student loan by making monthly payments of $300 per month for the next three years at an interest rate of 5% per year. John is married and has three children, Billy, age 2. Cindy, age 6, and sally, age 10. Johns wife, Mary, currently is a stay-at-home mom. When billy is old enough to attend school, Mary hopes to get a job as an administrative assistant in the children's school. That position pays about $20,000 per year. Mary has a high school diploma and a certificate showing she completed one year of practical secretarial training. Mary is 34 years old. John and Mary pay $900 per month for their home mortgage, which will be paid off in 20 years. The interest rate on their mortgage is 4.0%. (Their current equity in the home is $36,000.) The couple own two cars, both 10 years old, and personal property (such as clothes, electronics, furniture, etc) valued at $45,000. Their investments include checking, savings, and mutual fund accounts equal to $8,000. John has no life insurance. Mary has a $25,000 whole life insurance policy that was given to her by her parents when she turned 18. If John should die, Mary would receive approximately $5,000 per year for each child 18 years of age or younger.

John and Mary spend almost all of John's take-home pay each month. They are able to save $300 per month that they deposit into a tax-deferred college fund for the children. The college fund has been earning a respectable rate of return of about 7% per year. Their other investments earn about 5% per year. John is worried about what may happen to his family if he should die. He is considering the purchase of life insurance and asks for your advice.

1) Assuming neither John nor Mary will receive large inheritances, how much life insurance do you think John needs? Calculate the amount using the needs approach. Show all calculations and explain your answer. Also indicate the type of insurance you would recommend, whole life or term. If you recommend term, specify length of the term policy.

2) Assume that John and Mary purchase a whole life policy on John's life in the amount you determined in part 1. (If the amount you determined is less than $200,000, assume an amount of $200,000) Fifteen years later, John decides he doesnt want to make any more premium payments. Which non-forfeiture option would you recommend? Explain the selection.

3) Assume that John and Mary purchase a whole life policy on John's life in the amount you determined in part 1. (If the amount you determined is less than $200,000, assume an amount of $200,000) John dies at age 55. Which settlement option would you recommend? explain your selection and note any assumptions made.

Life Insurance Needs Analysis Case

Your friend John asks you for advice concerning life insurance. John is 34 years old and graduated from law school last year. He currently earns $24,000 per year as a waiter, but is looking for a position with a local law firm. John is married and has one child, Billy, age 10. John’s wife, Mary, is a professor who currently earns $58,000 per year. Mary is 32 years old. John and Mary pay $1,200 per month for their home mortgage, which will be paid off in 20 years. The interest rate on their mortgage is 6.5%. (Their current equity in the home is $50,000.) The couple owns two cars, both 8 years old, and personal property (such as clothes, electronics, furniture, etc.) valued at $35,000. Their investments include checking, savings, and mutual fund accounts equal to $10,000. John has no life insurance. Mary has $150,000 of life insurance provided by her employer. Mary’s pension plus social security are expected to total $45,000 per year, beginning when she is 65 years old. If John should die, Mary would receive approximately $10,000 per year from social security until Billy reaches age 18.

John and Mary spend most of their current income, although they do try to save about $50 per month. Their investments earn approximately 5% per year. Their only existing debt is their home mortgage. Given that John and Mary both enjoy flexible work schedules, they are able to raise Billy without the help of a babysitter or nanny. John picks up Billy from school on Tuesdays and Thursdays and Mary picks him up on Mondays, Wednesdays and Fridays. However, John and Mary want to have another child next year and expect Mary to take one year off from work.

John is worried about what may happen to his family is he should die. He is considering the purchase of life insurance and asks your advice. Assuming neither John nor Mary will receive large inheritances, how much life insurance do you think John needs on his life? (Use the needs approach.) Show all calculations and explain your answer. Make any assumptions you believe are reasonable, and make sure your assumptions are clearly stated. Also indicate the type of insurance you would recommend, whole life or term, and explain why.

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in