3An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child atthe child's birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to theinsurance company:eBookFirst birthday:Second birthday:Third birthday:$ 860$ 860$ 960$ 960Fourth birthday:Fifth birthday:Sixth birthday:After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $120,000.If the relevant interest rate is 9 percent for the first six years and 5 percent for all subsequent years, what is the value of the policy atthe child's 65th birthday?Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.Child's 65th birthday$ 1,060$ 1,060

Interest Rate for first 6 years = 9%Interest for Remaining all subsequent years = 5%Value at Year 6…

Answered: An insurance company is offering a new…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A-7
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. For this policy, the purchaser (say, the parent) makes the following six payments to the insurance company: First birthday Second birthday Third birthday Fourth birthday Fifth birthday Sixth birthday $780 $780 $880 $850 $980 $950 After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $280,000. If the relevant interest rate is 10 percent for the first six years and 7 percent for all subsequent years, what would the value of the deposits be when the policy matures? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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