John, 38, makes $125,000 per year. He has a 35 year old wife, Nancy, and a daughter who just turned 7. John’s share of the family’s consumption is 21%, and

John, 38, makes $125,000 per year. He has a 35 year old wife, Nancy, and a daughter who just turned 7. John’s share of the family’s consumption is 21%, and he pays an average tax rate of 28%. He plans to work another 30 years and expects salary increases equal to inflation, which he expects to be 3% annually. He expects to earn an 8% nominal rate of return on his investments. 3. Use the Capitalization of Earning method to determine John’s appropriate life insurance coverage (note: use FSE and the real interest rate).

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