Ingrid is considering of buying an insurance today. Insurance A will pay $150,000 starting next year,...

   

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Ingrid is considering of buying an insurance today. Insurance A will pay $150,000 starting next year, and for the first five years the annual payments would increase by 2% each year. Thereafter she will receive a fixed payment of $300,000 each year till forever. The interest rate is 8% annually. a. What is the value of this insurance package today? b. Ingrid is also considering another insurance option (Insurance B) in which it will pay her $50,000 starting the end of this year, and each year the payments will increase by 6% till forever. Should Ingrid choose this option instead? c. How much does the annual payment need to grow each year in option B so that Ingrid will be indifferent from choosing between Insurance A and Insurance B? Ingrid is considering of buying an insurance today. Insurance A will pay $150,000 starting next year, and for the first five years the annual payments would increase by 2% each year. Thereafter she will receive a fixed payment of $300,000 each year till forever. The interest rate is 8% annually. a. What is the value of this insurance package today? b. Ingrid is also considering another insurance option (Insurance B) in which it will pay her $50,000 starting the end of this year, and each year the payments will increase by 6% till forever. Should Ingrid choose this option instead? c. How much does the annual payment need to grow each year in option B so that Ingrid will be indifferent from choosing between Insurance A and Insurance B?

Answer rating: 100% (QA)

Analyzing Ingrids Insurance Options a Value of Insurance Package A Today Present Value Years 15 We need to calculate the future value of each years pa... View the full answer