Answer the following:

• a. The human life value is one method for estimating the amount of life insurance to own. Keeping all other factors unchanged, explain the effect, if any, of each of the following:

1. The discount rate used to calculate the human life value is increased.
2. The amount of average annual income going to the family is increased.
3. The period over which income is paid to the family is reduced.

• b. Explain the limitations of the human life value approach as a method for determining the amount of life insurance to own.

Explain how the nature-nurture debate could be used to support each element of the biopsychosocial approach to explaining human behavior.

Exercise 12.14 describes a study of whether patients who file complaints leave a health maintenance organization (HMO). We want to know whether complainers are more likely to leave than patients who do not file complaints. In the year of the study, 639 patients filed complaints, and 54 of these patients left the HMO voluntarily. For comparison, the HMO chose an SRS of 743 patients who had not filed complaints. Twenty-two of these patients left voluntarily.

The HMO has more than 400,000 members. Check that you can safely use the methods of this section.

Answer the following:

• a. Explain the meaning of premature death.
• b. Identify the costs associated with premature death.
• c. Explain the economic justification for the purchase of life insurance.

For life insurance policies, some of the premium pays for the cost of the insurance and the remainder goes toward the cash value of the policy and earns interest like a savings account. Suppose that on the cash value of their policies, one insurance company pays $4.8 \%$ compounded monthly and another pays $4.82 \%$ compounded semiannually. Which company offers a higher yield?

Should you switch life insurance policies?

O’Reilly Beverage Company reported net income of $650,000 for 2021. In addition, the company deferred a$60,000 pretax loss on derivatives and had pretax net unrealized gains on debt securities of $40,000. Prepare a separate statement of comprehensive income for 2021. The company’s income tax rate is 25%

Which of the following is not covered in the standard fire policy? (a) losses due to fire (b) losses due to lightning strikes (c) losses due to inept attorneys (d) none of the above are covered.

On December 31, 2018, the end of the fiscal year, California Microtech Corporation completed the sale of its semiconductor business for $\$ 10$ million. The business segment qualifies as a component of the entity according to GAAP. The book value of the assets of the segment was $\$ 8$ million. The loss from operations of the segment during 2018 was $\$ 3.6$ million. Pretax income from continuing operations for the year totaled $\$ 5.8$ million. The income tax rate is $30 \%$. Prepare the lower portion of the 2018 income statement beginning with pretax income from continuing operations. Ignore EPS disclosures.

Answer the following:

• a. The needs approach is widely used for determining the amount of life insurance to purchase. Describe the following needs for a typical family head:

1. Cash needs
2. Income needs
3. Special needs

• b. Explain the capital retention approach for determining the amount of life insurance to own.

John, age 52, is overweight, smokes, and had a mild heart attack five years ago. Ignoring the advice of his physician, he refuses to exercise, lose weight, and quit smoking. John owns a $25,000 participating ordinary life policy that he purchased 20 years ago. A life insurance agent approached John and proposed that he replace the older policy with a new life insurance policy. The agent claims the new policy is superior to the older policy that was purchased years ago. Despite John’s health problems, the agent claims that John can get life insurance from his company. What factors should John consider before replacing the older policy with a new policy?

On December 31, 2018, the end of the fiscal year, Revolutionary Industries completed the sale of its robotics business for $\$ 9$ million. The business segment qualifies as a component of the entity according to GAAP. The book value of the assets of the segment was $\$ 7$ million. The income from operations of the segment during 2018 was $\$ 4$ million. Pretax income from continuing operations for the year totaled $\$ 12$ million. The income tax rate is $40 \%$. Prepare the lower portion of the 2018 income statement beginning with pretax income from continuing operations. Ignore EPS disclosures.

On December 31, 2021, the end of the fiscal year, Revolutionary Industries completed the sale of its robotics business for $9 million. The robotics business segment qualifies as a component of the entity according to GAAP. The book value of the assets of the segment was$7 million. The income from operations of the segment during 2021 was $4 million. Pretax income from continuing operations for the year totaled$12 million. The income tax rate is 25%. Prepare the lower portion of the 2021 income statement beginning with income from continuing operations before income taxes. Ignore EPS disclosures.

On December 31, 2021, the end of the fiscal year, California Microtech Corporation completed the sale of its semiconductor business for $10 million. The semiconductor business segment qualifies as a component of the entity according to GAAP. The book value of the assets of the segment was$8 million. The loss from operations of the segment during 2021 was $3.6 million. Pretax income from continuing operations for the year totaled$5.8 million. The income tax rate is 25%. Prepare the lower portion of the 2021 income statement beginning with income from continuing operations before income taxes. Ignore EPS disclosures.

Assume instead that the estimated fair value of the segment’s assets, less costs to sell, on December 31 was $7 million rather than$10 million. Prepare the lower portion of the 2021 income statement beginning with income from continuing operations before income taxes. Ignore EPS disclosures.