Scenario 15.5: Consider the Following Information Based on a Story by Hubert

question 73

Multiple Choice

Scenario 15.5:
Consider the following information based on a story by Hubert B. Herring that appeared in The New York Times on Catherine has a two-pack-a-day cigarette habit. Cigarettes cost about $2 per pack. Catherine is 20. On a $250,000 life insurance policy, her annual premiums are $1200; a non-smoker's would be $500. Smokers earn from 4 to 8 percent less in income than non-smokers (lower productivity and more absence, among other things) . In this case Catherine's income is expected to be $20,500 per year over her lifetime whereas $22,000 is an average non-smoker's salary. Let interest rates are expected to be 3%.
-Refer to Scenario 15.5. If Catherine stopped smoking, then what is the total amount that Catherine will save on life insurance premiums over the rest of her expected life span?

• A) $700
• B) $14,000
• C) $30,000
• D) $42,000
• E) $56,000

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