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. The details of the policy are as follows: 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: $ 820 $820 $920 $920 $ 1,020 $1,020 After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $115,000. 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 at the 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

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
icon
Related questions
Question
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. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the
insurance company:
$ 820
$ 820
$920
First birthday:
Second birthday:
Third birthday:
Fourth birthday:
Fifth birthday:
Sixth birthday:
$920
$ 1,020
$ 1,020
After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $115,000.
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 at
the 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
Transcribed Image Text: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. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company: $ 820 $ 820 $920 First birthday: Second birthday: Third birthday: Fourth birthday: Fifth birthday: Sixth birthday: $920 $ 1,020 $ 1,020 After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $115,000. 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 at the 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
Expert Solution
steps

Step by step

Solved in 3 steps with 1 images

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education