problem: Apply the following information; compute the amount of insurance that Mr. Greenleaf should carry using a ‘human life value’ approach:
Mr. Greenleaf’s current annual income is 137,000 dollar. Of this the cost of medical insurance, income taxes and social security taxes are 51,700 dollar. His cost of self-maintenance is 20,000 dollars. He is now 45 years old and expects to work to age 66. His wife is age 40 and expects to work to age 66. Her current annual income is 47,000 dollars. Her life expectancy is 84.5 years. Suppose no growth in Mr. Greenleaf’s future income.
In order to make this computation you have to use a ‘reasonable discount rate.’ Determine the problems inherent in making this assumption?
For ex:
[A] Your estimate using a 6 percent ‘reasonable discount rate.’
[B] Your estimates if you increased or lowered the ‘reasonable discount rate’ by one percent.
Suppose that inflation is zero.