Mt/CS 401 Seminar

Spring 2004

Department of Mathematics & Computer Science
CARDINAL STRITCH UNIVERSITY
Sr. Barbara E. Reynolds, Ph.D.

Wealth, image, and status are strong motivators in today's world -- just as they were in St. Francis's day. Good stewardship requires us to understand how money works, and how wealth can be used responsibility in making the world a better place. Adapted from the booklet, Franciscan Values at Cardinal Stritch University, published by the Office of Franciscan Mission at Cardinal Stritch University through a grant from the Teagle Foundation, Inc.

Loan Insurance Analysis

January, 2004

Problem/Question

Find a combination of whole-life and decreasing-term insurance which will cover the outstanding principal on a $1000 mortgage loan. What is the cost for this combination? Very probably your first solution will not have a minimum cost, but it should at all times cover the outstanding principal on the $1000 mortgage as described on page 1 of the Student Resource Book.

Suggested Reading

Loan Insurance Analysis (Student Resource Book), by James R. Choike

If this problem is chosen for discussion, the Student Resource Book will be available as a (paper) handout. A video is also available, which puts this problem in the context of a possible career path. All of the information you need to solve this problem is in the Student Resource Book. You might decide to work on the problem, then view only the Solution portion of the video.

Questions to Ponder and Explore
  1. As you read the statement of the problem and the background information (pages 1 - 3) of the Student Resource Book), try to sketch graphs of
    • the remaining principal,
    • the death benefit for a decreasing-term policy,
    • the death benefit for a whole-life policy.
  2. Sketch a graph of the death benefit for a policy which is a combination of decreasing-term and whole-life insurance.
  3. What does it mean for a loan to be "covered" by insurance? How are your sketch graphs in 1 and 2 related to this question of having the loan covered by insurance?
  4. Would $1000 of decreasing-term insurance alone cover the $1000 loan? If not, what amount of decreasing-term insurance (alone) would be needed?
  5. What amount of whole-life insurance would be needed in addition to $1000 of decreasing-term insurance to cover the loan?
  6. How would the amount of whole-life insurance needed in combination with decreasing-term insurance to cover the loan be affected by using less (or more) decreasing-term insurance?
  7. If you have a general formula for a combination of whole-life and decreasing-term insurance, how would you calculate the cost (i.e., the premium) of this policy? What techniques (from calculus) do you know for minimizing cost?
Return to Sr. Barbara E. Reynolds Home Page.
Return to course list for 2003 -- 2004.
Return to Mt/CS 401: Assignments Assignments.
Go to Mt/CS 401: Seminar Syllabus.
Eventually the Revised Syllabus will be posted here, too.
The easiest way to contact me is to send an email message to Sr. Barbara E. Reynolds.
This page was updated on January 17, 2004.