Sherita, age 37, wants to pay no more than $750 a year in life insurance. If the annual life insurance premium rate (per $1000 of face value) is $3.96, what is the largest 15-year term policy she can buy without spending more than $750 annually?
a.
$189,000
b.
$109,890
c.
$203,252
d.
$276,750
The annual premium for Sherita is $750. The premium rate per $1000 of face value is $3.96.
Let the face value of the term policy be x.
The premium for the policy is given by:
Premium = (x/1000) * $3.96
Since Sherita wants to pay no more than $750 annually, we can set up an equation:
(x/1000) * $3.96 = $750
Multiply both sides of the equation by 1000 to get:
(x) * $3.96 = $750 * 1000
Divide both sides of the equation by $3.96 to isolate x:
x = ($750 * 1000) / $3.96
x = 189,393.94
Therefore, the largest 15-year term policy that Sherita can buy without spending more than $750 annually is $189,000 (approximated to the nearest thousand).
The correct answer is a. $189,000.
To find the largest 15-year term policy that Sherita can buy without spending more than $750 annually, we need to calculate the maximum face value she can get for that premium amount.
First, let's calculate the maximum premium Sherita can spend per year:
Maximum premium per year = $750
Next, let's calculate the premium per $1000 of face value:
Premium per $1000 of face value = $3.96
Now, let's find the maximum face value Sherita can get for the given premium per year:
Maximum face value = Maximum premium per year / Premium per $1000 of face value
Maximum face value = $750 / $3.96
Maximum face value ≈ $189,394
Therefore, the largest 15-year term policy Sherita can buy without spending more than $750 annually is $189,000.
So, the correct answer is (a) $189,000.