An insurance company is offering a new policy to its customers. Typically, the p
ID: 2613002 • Letter: A
Question
An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child’s birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company
After the child’s sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $380,000.
If the relevant interest rate is 11 percent for the first six years and 7 percent for all subsequent years, what is the value of the policy at the child's 65th birthday? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child’s birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company
Explanation / Answer
392,608.70 Birthday Amount Time Till Sixth Year Amount at end of 6 Years @11% First Birthday 830.00 5.00 1,398.60 Second Birthday 830.00 4.00 1,260.00 Third Birthday 930.00 3.00 1,271.90 Fourth Birthday 930.00 2.00 1,145.85 Fifth Birthday 1,030.00 1.00 1,143.30 Sixth Birthday 1,030.00 - 1,030.00 7,249.65 Amount at end of 6 years 7,249.65 Rate 7% Year Opening Balance Interest(Opening bal*Intt rate) Closing Balance(Op bal + Intt + Invt) 7.000 7,249.65 507.48 7,757.13 8.000 7,757.13 543.00 8,300.12 9.000 8,300.12 581.01 8,881.13 10.000 8,881.13 621.68 9,502.81 11.000 9,502.81 665.20 10,168.01 12.000 10,168.01 711.76 10,879.77 13.000 10,879.77 761.58 11,641.35 14.000 11,641.35 814.89 12,456.25 15.000 12,456.25 871.94 13,328.19 16.000 13,328.19 932.97 14,261.16 17.000 14,261.16 998.28 15,259.44 18.000 15,259.44 1,068.16 16,327.60 19.000 16,327.60 1,142.93 17,470.53 20.000 17,470.53 1,222.94 18,693.47 21.000 18,693.47 1,308.54 20,002.01 22.000 20,002.01 1,400.14 21,402.15 23.000 21,402.15 1,498.15 22,900.30 24.000 22,900.30 1,603.02 24,503.33 25.000 24,503.33 1,715.23 26,218.56 26.000 26,218.56 1,835.30 28,053.86 27.000 28,053.86 1,963.77 30,017.63 28.000 30,017.63 2,101.23 32,118.86 29.000 32,118.86 2,248.32 34,367.18 30.000 34,367.18 2,405.70 36,772.89 31.000 36,772.89 2,574.10 39,346.99 32.000 39,346.99 2,754.29 42,101.28 33.000 42,101.28 2,947.09 45,048.37 34.000 45,048.37 3,153.39 48,201.75 35.000 48,201.75 3,374.12 51,575.87 36.000 51,575.87 3,610.31 55,186.18 37.000 55,186.18 3,863.03 59,049.22 38.000 59,049.22 4,133.45 63,182.66 39.000 63,182.66 4,422.79 67,605.45 40.000 67,605.45 4,732.38 72,337.83 41.000 72,337.83 5,063.65 77,401.48 42.000 77,401.48 5,418.10 82,819.58 43.000 82,819.58 5,797.37 88,616.95 44.000 88,616.95 6,203.19 94,820.14 45.000 94,820.14 6,637.41 101,457.55 46.000 101,457.55 7,102.03 108,559.58 47.000 108,559.58 7,599.17 116,158.75 48.000 116,158.75 8,131.11 124,289.86 49.000 124,289.86 8,700.29 132,990.15 50.000 132,990.15 9,309.31 142,299.46 51.000 142,299.46 9,960.96 152,260.42 52.000 152,260.42 10,658.23 162,918.65 53.000 162,918.65 11,404.31 174,322.96 54.000 174,322.96 12,202.61 186,525.57 55.000 186,525.57 13,056.79 199,582.36 56.000 199,582.36 13,970.76 213,553.12 57.000 213,553.12 14,948.72 228,501.84 58.000 228,501.84 15,995.13 244,496.97 59.000 244,496.97 17,114.79 261,611.76 60.000 261,611.76 18,312.82 279,924.58 61.000 279,924.58 19,594.72 299,519.30 62.000 299,519.30 20,966.35 320,485.65 63.000 320,485.65 22,434.00 342,919.65 64.000 342,919.65 24,004.38 366,924.02 65.000 366,924.02 25,684.68 392,608.70
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