Dieter wishes to take out a life insurance policy with BigInsureCo, with a payout of $20,000,000 which will occur immediately after Dieter dies. Dieter will make regular fortnightly payments, starting in a fortnight's time. BigInsureCo invest the payments they receive from Dieter in a savings fund that pays interest of j26 = 5.46% p.a. Dieter's life expectancy is 10 years. (i.e. expected to die after 10 years). The money accumulated in the fund will be used to provide the payout to Dieter's beneficiaries.

 
a. Illustrate the cashflows associated with this scenario as a fully labelled timeline diagram.
b. Determine the required size of their fortnightly payment, if BigInsureCo want to break even. (That is, have $20,000,000 when Dieter dies.)
c. Describe and perform a sanity check for your answer
d. Construct a sinking fund schedule showing the last two deposits into the fund. Ensure that you show how you  got your starting value, and also that you provide example calculations for one line.
e.  Describe and perform a sanity check for your answer

Answer rating: 100% (QA)

a Timeline diagram less Copy code Time in fortnights 0 1 2 3 4 520 Cashflows 0 0 P P P P Here P repr... View the full answer