An insurance company is offering a new policy to its customers. Typically the policy is bought by
Question:
First birthday: ........$ 500
Second birthday: .........$ 600
Third birthday: .........$ 700
Fourth birthday: .......$ 800
Fifth birthday: .........$ 900
Sixth birthday: ........$ 1,000
After the child’s sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $ 275,000. If the relevant interest rate is 11 percent for the first six years and 7 percent for all subsequent years, is the policy worth buying?
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Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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