You needed to cover a $100,000 per year income stream for 15 years with an insurance policy.If you feel like you you can get a 6% return after taxes and inflation,what should be the value of that policy today?

Question

Quizplus · Accepted Answer

To calculate the value of the insurance policy, we need to use the present value formula:

PV = FV / (1 + r)^n

Where:
PV = Present value
FV = Future value (the total amount needed to cover the income stream)
r = Rate of return after taxes and inflation
n = Number of years

In this case, FV is the sum of the income payments for 15 years, discounted at a rate of 6%. So, we can use a financial calculator or spreadsheet to solve for PV:

PV = $100,000 x (1 - 1 / (1 + 0.06)^15) / 0.06
PV = $971,224.90

Therefore, the best choice is B, which is the value of the insurance policy today.

You Needed to Cover a $100,000 Per Year Income Stream