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)
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.
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from Accounting 302: Advanced AccountingChapter 12 / Lesson 2