An insurance company is offering a new policy to its customers. Typically, the p
ID: 2764870 • 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 $300,000. 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 65^th birthday. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)Explanation / Answer
Opening balance
Payment
Interest @10%
Closing balance
First birth day
-
800.00
80.00
880.00
Second birth day
880.00
800.00
168.00
1,848.00
Third birth day
1,848.00
900.00
274.80
3,022.80
Forth birth day
3,022.80
850.00
387.28
4,260.08
Fifth birth day
4,260.08
1,000.00
526.01
5,786.09
Sixth birth day
5,786.09
950.00
673.61
7,409.70
Future Value
PV*(1+i)^n
Future Value
7409.7*((1+0.07)^59)
Future Value
401276.2981
Opening balance
Payment
Interest @10%
Closing balance
First birth day
-
800.00
80.00
880.00
Second birth day
880.00
800.00
168.00
1,848.00
Third birth day
1,848.00
900.00
274.80
3,022.80
Forth birth day
3,022.80
850.00
387.28
4,260.08
Fifth birth day
4,260.08
1,000.00
526.01
5,786.09
Sixth birth day
5,786.09
950.00
673.61
7,409.70
Future Value
PV*(1+i)^n
Future Value
7409.7*((1+0.07)^59)
Future Value
401276.2981
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.