Jim (life expectancy is 20 years) decides to purchase a life insurance policy for $75,000 that promises a 9 percent annual return. Jim decides to cash in the policy after five years while still living. Assuming Jim's marginal tax rate is 35 percent, what are his after-tax proceeds? (Round all interim calculations to the nearest whole number)

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Quizplus · Accepted Answer

Jim's policy grows at 9% annually. After 5 years, the policy value is $75,000 * (1 + 0.09)^5 = $115,397. The gain is $115,397 - $75,000 = $40,397. After a 35% tax on the gain, the tax is $40,397 * 0.35 = $14,139. The after-tax proceeds are $115,397 - $14,139 = $101,258.

Jim (Life Expectancy Is 20 Years) Decides to Purchase a Life