Reference no: EM132929129

Question - Stanley, 35, is a CPA working for a small manufacturing company earning $80,000 per year. His wife, Denise, 33, works part-time (three afternoons per week) for a doctor's office, earning $20,000 per year. They have a 6-year old son, who goes to school and day-care. Denise does most of the household duties, and it would cost the family $15,000 per year to hire people to provide the household duties if she were to pass away. Stanley does some maintenance and repair for the house as well as some other small chores, which would cost the family $3,000 per year to so these duties if he were to pass away. The family currently spends $45,000 per year, but if one of the couple dies, the annual expenditure will fall to $39,000 per year. You can ignore taxes and inflation in this question. The appropriate discount rate is 3%. Assume that all the dollars in this question are real dollars.

(a) What is the amount of life insurance that the family needs under the Income Approach?

(b) What is the amount of life insurance that the family needs under the Expense Approach?