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:
First birthday: $750

Second birthday: $750

Third birthday: $850

Fourth birthday: $850

Fifth birthday: $950

Sixth birthday: $950

After the child’s sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $250,000. If the relevant interest rate is 10 percent for the first six years and 7 percent for all subsequent years, is the policy worth buying?

  • CreatedMarch 13, 2014
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