FIN 502 Lecture Notes - Lecture 1: Whole Life Insurance, Standard Deviation, Moral Hazard

• School: Ryerson University
• Department: Finance
• Course: FIN 502
• Professor: Laleh Samarbakhsh

Document Summary

(cid:1846)(cid:1845)=(cid:4666)pit + 50%(cid:2913)(cid:2925)(cid:2924)(cid:2914)(cid:2925) (cid:2916)(cid:2915)(cid:2915)(cid:2929) + (cid:2914)(cid:2915)(cid:2912)(cid:2930) (cid:2925)(cid:2912)(cid:2922)(cid:2917)(cid:2911)(cid:2930)i(cid:2925)(cid:2924)(cid:2929)(cid:4667) (cid:2911)(cid:2924)(cid:2924)(cid:2931)(cid:2911)(cid:2922) (cid:2917)(cid:2928)(cid:2925)(cid:2929)(cid:2929) i(cid:2924)(cid:2913)(cid:2925)(cid:2923)(cid:2915) (cid:1845)=(cid:4666)pit + 50%(cid:2913)(cid:2925)(cid:2924)(cid:2914)(cid:2925) (cid:2916)(cid:2915)(cid:2915)(cid:2929) (cid:4667) (cid:2911)(cid:2924)(cid:2924)(cid:2931)(cid:2911)(cid:2922) (cid:2917)(cid:2928)(cid:2925)(cid:2929)(cid:2929) i(cid:2924)(cid:2913)(cid:2925)(cid:2923)(cid:2915) =ceiling 30% Pmt = ,000 (i. e. 70% of ,000) n = 30 years = 30 periods. I = 3. 00% / p. a. k = 3. 00% / period. Total payout over 40 years = ,743 x 40 = ,720. Face value of the policy (non-taxable) = ,812. Taxable amount per year = [total payout - face value of the policy (non-taxable)]/term. Taxable amount = (,720 - ,812) / 40. Whole life insurance - the face amount of the policy is paid to beneficiaries on death of insured. The cash value is paid to insured/owner when policy is cancelled, or to the beneficiary upon death of the insured. Endowment life policy - the face amount of the policy is paid to beneficiaries on death of insured.