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John Wilson is a 42-year-old computer programmer, husband, and father of four. He wants to use the capital retention approach to determine how much life insurance he should purchase. Because of his $105,000 salary and their four children, his wife does not work outside the home. The family’s current annual living expenses are approximately $75,000, including $8,000 in annual IRA contributions. He prefers to use the capital retention approach (CRA) so that he can be reasonably assured that his family will not exhaust the proceeds of his policy. However, he also wants to consider the possible reduction in expenses and apply a 70% replacement ratio to the calculation.a. Calculate John’s insurance need using the capital retention approach, an after-tax discount rate of 5.5%, and assume end-of period payment of benefits.b. Calculate John’s insurance need using the human life value approach (HLV), an after-tax discount rate of 5.5%, a remaining working life of 25 years, and assume end-of period payment of benefits.After your presentation, John was bewildered about why the HLV and CRA calculations resulted in significantly different insurance needs. Using the two formulas as a guide, explain to John why this result occurred.
What amount is needed to be invested today at 6% Per annum, compounded semiannually, to equal $17,000 10 years from now? What amount is needed to be invested for the 2 1/2 years at 8% per annum, compounded quarterly to equal $5,000?
An investor purchases a mutual fund share for $100. the fund pays dividends of $3, distributes a capital gain of $4, and charges a fee of $2 when the mutual fund is sold one year later for $105. What is the rate of return from this investment?
If 10 percent is the appropriate discount rate, what is the present value of this stream of cash flows? If 20% is the appropriate discount rate, what is the present value of the cash flows?
Which of the two long-term financing securities (debt or equity) would potentially maximize shareholder earnings more?
what would have been your rate of return on this investment? What would be your rate of return if you had put in a market order? What if your limit order was at $18?
Valuation Case, Additionally, Mr. Hawks asked for assistance in identifying the most optimal capital structure for NABR, and given he did not understand the topic he requested a brief summary of the impact of having too much debt or too much equity..
What is the value of the interest rate swap to the party that receives the fixed-rate payment and pays the floating-rate payment? What is the value of the same interest rate swap to the party that receives floating and pays fixed?
Assume the following bond quotes for IOU Company appear in the financial page of today's newspaper. Suppose the bond has a face value of $1,000 and current date is April 15, 2007.
Compute the expected earnings per share (EPS) for ABC for each of the next five years (2010-2014) without the merger. What would ABC's stockholders earn in each of the next 5 years (2010-2014) on each of their ABC shares swapped for DEF shares a a r..
The U.S. Treasury bill is currently selling at a discount basis of 4.25%. The par value of the bill is $100,000, and will mature in ninety days. What is the price of this Treasury bill?
Create a table for the NPV profile for this project for discount rates ranging from 0% to 30%, in intervals of 5%. For which discount rates is the project attractive?
Brighton depreciates oil rigs straight line over 10 years assuming no salvage value. The rig was just sold to British Petroleum for $25,000,000. What Capital Gain/Loss will Brighton report on this transaction?
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