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%.
-According to the information in Scenario 15.5, if Catherine's life expectancy is 80 as a non-smoker and no inflation is expected to occur throughout her life (so that cigarettes stay at $2 per pack), then what amount would she save by not buying cigarettes?

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%.
-According to the information in Scenario 15.5, if Catherine's life expectancy is 80 as a non-smoker and no inflation is expected to occur throughout her life (so that cigarettes stay at $2 per pack), then what amount would she save by not buying cigarettes?

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%.
-According to the information in Scenario 15.5, if Catherine's life expectancy is 80 as a non-smoker and no inflation is expected to occur throughout her life (so that cigarettes stay at $2 per pack), then what amount would she save by not buying cigarettes?

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