John, 38, makes $125,000 per year. He has a 35 year old wife, Nancy, and a daughter who just turned 7. Johns share of the familys 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 Johns appropriate life insurance coverage (note: use FSE and the real interest rate).