Joetta Hernandez is a single parent with two children and earns $69,300 a year. Her employer's group life insurance policy would pay 2.5 times her salary. She also has $92,400 saved in a 401(k) plan, $7,700 in mutual funds, and a $4,620 certificate of deposit. She wants to purchase term life insurance for 15 years, until her youngest child is self-supporting. She is not concerned about her outstanding mortgage, as the children would live with her sister in the event of Joetta's death. Assuming she can receive a 6 percent after-tax, after-inflation return on insurance proceeds, use the earnings multiple method to calculate her insurance need. How much more insurance does Joetta need to buy? What other information would you need to know to use the needs approach to calculate Joetta's insurance coverage?

Assuming she can receive a 6% after-tax, after-inflation return on insurance proceeds and using the earnings multiple method, Joetta's insurance need is $enter your response here. (Round to the nearest dollar.)

Calculator Solution

To solve for the present value using a financial calculator, you will need to input the values of N, I/Y, and PMT. Set the P/Y value on your calculator to match the number of compounding periods in one year, which is 1. Make sure you enter a zero for FV, which is not used in the problem.