Problem 6-5

Julia Baker died, leaving to her husband Morgan an insurance policy contract that provides that the beneficiary (Morgan) can choose any one of the following four options. Money is worth 2.5% per quarter, compounded quarterly. Compute Present value if:

(a) $59,920 immediate cash. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Present value

$

(b) $4,030 every 3 months payable at the end of each quarter for 5 years. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Present value

$

(c) $19,050 immediate cash and $1,905 every 3 months for 10 years, payable at the beginning of each 3-month period. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Present value

$

(d) $4,030 every 3 months for 3 years and $1,570 each quarter for the following 25 quarters, all payments payable at the end of each quarter. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Present value

$

Which option would you recommend that Morgan exercise?