An insurance company is offering a new policy to its customers. Typically, the p

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 $350,000. The relevant interest rate is 10 percent for the first six years and 7 percent for all subsequent years. Find the future value of the payments at the child's 65th birthday. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Future Value Year1 850                    935 Year2 850                1,029 Year3 950                1,264 Year4 850                1,244 Year5 1050                1,691 Year6 950                1,683 Year65 350000      28,445,501 Total FV at the end of 65 Yrs      28,453,348

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