MTHEL131 Lecture Notes - Lecture 8: Myocardial Infarction, Criminal Record, Vehicle Insurance
12 Mar 2014
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Manage the risk of the unexpected death of a key employee/person. Ex: jane and sally own a business together worth ,000,000. Sally dies, jane consoles peter (sally"s husband: production goes down, customers turn to the competition, peter sells sally"s shares, jane can"t afford ,000, peter takes over sally"s 50% Jane goes to bank to take loan, business is not in position of strength doesn"t qualify. Legal document, holds true for more than two owners: death surviving partner must buy the shares from the estate. Ex: 28 year old gets ,000 from a will. Invested at 6 percent will double in 12 years: ,000 by age 40, ,000 by age 52, ,000 by age 64 (retirement) Inflation: annual inflation is about 2, can use rule if 72 to work backwards. Inflation has averaged 3% over the past 40 years. Inflation raises the price of cost of goods. Ex: retirement income is ,000 at age 60.
