Purchase of a disability policy

Reference no: EM1343949

Tarek Framborgia is considering the purchase of a disability policy. He is currently 35 years old and earns $50,000 per year as a quality control engineer for a major industrial company. His greatest concern is that with his moderately strenuous job responsibilities and his potential for increasing earnings he be adequately covered should an off-the-job accident keep him from continuing his career. He has come to you with the following list of problems and questions.

a. If I purchase a policy that pays a fixed benefit of 90% of my current salary, how long will it be before this amount covers only 70% of my future salary if I assume salary increases of 4% per year?

b. Assuming the same policy as above, if I purchase a policy with a provision for future increases of $1,000 per year, how long will it cover at least 70% of my income?

c. If I assume that both my salary and the inflation rate increase at 4% per year, and that there is no floor or ceiling to my potential benefit increases because I purchase both the COLA and future increase option provisions on the above policy, how much should my annual benefit be in 25 years?

Reference no: EM1343949

Questions Cloud

Calculate after-tax cost of debt financing : Last year Wei Guan corporation had $350 million of sales, and it had $270 million of fixed assets that were used at 65 percent of capacity. In millions, by how much could Wei Guan's sales raise.

Illustrate what role does weak financial regulation : Illustrate what role does weak financial regulation also supervision play in causing financial crises.

Converting arithmetic expression in reverse polish notation : Convert the following numerical arithmetic expression into reverse Polish notation and show the stack operations for evaluating the numerical result.

Calculate average accounting return : Colin Haberdashery Products is thinking a project that would have an initial cost of $285,000 & a 4 year life. The project's assets will be depreciated using straight-line depreciation to a zero book value .

Purchase of a disability policy : Explain how long will it be before this amount covers only 70% of my future salary if I assume salary increases of 4% per year

Rating of vital for page with highest utility : Rating of Vital is always given to the page with the highest utility.

Diversification of portfolios : Enron employees were heavily invested in Enron stock through their 401(k) plans. While firms frequently provide a match in the form of firm stock, employees are typically free to move the money to an optional investment.

When the federal reserve utilizes open-marketplace operation : When the Federal Reserve utilizes open-marketplace operations to raise the Federal funds rate several times over a yr.

Find the capital structure and the cost of capital : Show the pros and cons of applying different investment decision rules when faced with the choice of investing corporate funds. Provide two examples

User Account

All Pages