Pete's wife earns $37,400 per year. If Pete dies, his family would require $56,700 to cover their...

Question:

Pete's wife earns $37,400 per year. If Pete dies, his family would require $56,700 to cover their living expenses. Some of the yearly expenses would be offset by $2,400 from stock dividends, but this is still not enough. How much insurance should Pete have to cover the shortfall, given a 13.1% prevailing interest rate? (Round to nearest $1,000)

a. $129,000

b. $159,000

c. $147,000

d. $156,000

Dividends :

It is the sum of money which an investor gets from investing the money in stocks after a specific period of time. It depends upon the economic conditions of the country, if market booms, stock price rises which raises the dividend in return.

Answer and Explanation:

Earning of Pete wife earning = $37,400

If Pete dies, then his family would lack income of $56,700 - $37,400 = $19,300 per year.

$2,400 is also getting covered from stock dividend thus remaining shortfall of income is $16,900.

To cover $16,900 if a person invest $X at 13.1% rate of interest.

Thus 13.1% of X = $16,900

X = $129,000

Thus option A is correct.


Learn more about this topic:

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Impact of Dividend Distribution on Retained Earnings

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