Answer:
Answer explained
Explanation:
Firstly, we write down data & figures provided in question.
Annual household expense - $ 30,000
Marty contribution to household expenses is 75% amounting $ 22,500
Mary contribution to household expenses is 25% amounting $ 7,500
Rate of Interest on Investment - 6% per annum
Now question is how much life insurance should they purchase for marty so they can maintain current living standard and discharge other obligation in case of Marty's death.
Therefore, Insurance amount = Amount require to invest at 6% interest to provide annual interest income equals to marty's annual contribution to household expense + $ 75,000 (3x25,000) for college + $ 20,000 for nurse training + $ 55,000 for mortgage
Amount require to invest at 6% interest to provide annual interest income equals to marty's annual contribution to household expense = $ 22,500/0.06 = $ 375,000
Insurance Amount = 375,000 + 75,000 + 20,000 + 55,000 = $ 525,000
