Typically, the policy is bought by a parent or grandparent for a child at the childs birth.
Question:
Typically, the policy is bought by a parent or grandparent for a child at the child’s birth. The purchaser (say, the parent) makes the following six payments to the insurance company:
First birthday: ...................... $700
Second birthday: ................. $700
Third birthday: ..................... $800
Fourth birthday: .................. $800
Fifth birthday: ...................... $900
Sixth birthday: ..................... $900
After the child’s sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $300,000. 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?
Step by Step Answer:
Fundamentals of Corporate Finance
ISBN: 978-1260153590
12th edition
Authors: Stephen M. Ross, Randolph W Westerfield, Robert R. Dockson, Bradford D Jordan