My question is how would I calculate the present worth (PW) ofa future amount wi

Question

My question is how would I calculate the present worth (PW) ofa future amount with inflation considered for the premium forplans below. Assuming that the inflation rate is 5% per year,interest rate is 10% per year and I am 26 and will die at age85. The coverage amount for this life insurance is $5,000,000 a) Return of premium term-20 years is $6075 for Annualnon tobacco rate b)Return of premium term-30 years is $6375 for annual nontobacco rate c) Selec Term-20 years is $2475 for annual non tobaccorate d) Select Term-30 years is $ 4075 for annual non tobaccorate e) Whole Life is $42450 for annual non tobacco rate 2) Use the present worth or PW analysis to compare the rate ofreturn for plan a), c), and e). if you die after 10 years , 15years. My question is how would I calculate the present worth (PW) ofa future amount with inflation considered for the premium forplans below. Assuming that the inflation rate is 5% per year,interest rate is 10% per year and I am 26 and will die at age85. The coverage amount for this life insurance is $5,000,000 a) Return of premium term-20 years is $6075 for Annualnon tobacco rate b)Return of premium term-30 years is $6375 for annual nontobacco rate c) Selec Term-20 years is $2475 for annual non tobaccorate d) Select Term-30 years is $ 4075 for annual non tobaccorate e) Whole Life is $42450 for annual non tobacco rate 2) Use the present worth or PW analysis to compare the rate ofreturn for plan a), c), and e). if you die after 10 years , 15years.

Explanation / Answer

When u use the nominal interest rate, there is no need to takeinflation into account (since this has already been done). If u use the real interest rate (very unlikely) u first compute thenominal interest rate using: 1 + r = (1 + i)(1 + ) where r is the nominal interest, i the real interest, and isthe inflation rate.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.