Scenario 15.5:
Consider the following information based on a story by Hubert B. Herring that appeared in The New York Times on Catherine has a two-pack-a-day cigarette habit. Cigarettes cost about $2 per pack. Catherine is 20. On a $250,000 life insurance policy, her annual premiums are $1200; a non-smoker's would be $500. Smokers earn from 4 to 8 percent less in income than non-smokers (lower productivity and more absence, among other things). In this case Catherine's income is expected to be $20,500 per year over her lifetime whereas $22,000 is an average non-smoker's salary. Let interest rates are expected to be 3%.
-Refer to Scenario 15.5. If Catherine stopped smoking, then what is the total amount that Catherine will save on life insurance premiums over the rest of her expected life span?

Question

Scenario 15.5:
Consider the following information based on a story by Hubert B. Herring that appeared in The New York Times on  Catherine has a two-pack-a-day cigarette habit. Cigarettes cost about $2 per pack. Catherine is 20. On a $250,000 life insurance policy, her annual premiums are $1200; a non-smoker's would be $500. Smokers earn from 4 to 8 percent less in income than non-smokers (lower productivity and more absence, among other things). In this case Catherine's income is expected to be $20,500 per year over her lifetime whereas $22,000 is an average non-smoker's salary. Let interest rates are expected to be 3%.
-Refer to Scenario 15.5. If Catherine stopped smoking, then what is the total amount that Catherine will save on life insurance premiums over the rest of her expected life span?

Quizplus · Accepted Answer

The Answer of Scenario 15.5:
Consider the following information based on a story by Hubert B. Herring that appeared in The New York Times on  Catherine has a two-pack-a-day cigarette habit. Cigarettes cost about $2 per pack. Catherine is 20. On a $250,000 life insurance policy, her annual premiums are $1200; a non-smoker's would be $500. Smokers earn from 4 to 8 percent less in income than non-smokers (lower productivity and more absence, among other things). In this case Catherine's income is expected to be $20,500 per year over her lifetime whereas $22,000 is an average non-smoker's salary. Let interest rates are expected to be 3%.
-Refer to Scenario 15.5. If Catherine stopped smoking, then what is the total amount that Catherine will save on life insurance premiums over the rest of her expected life span?

Scenario 15.5: Consider the Following Information Based on a Story by Hubert