esProblem 5-60 Future Value and Multiple Cash Flows [LO 1]An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent forchild at the child's birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following sixpayments to the insurance company:Check my worFirst birthday:Second birthday:Third birthday:Fourth 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 $360,000.If the relevant interest rate is 12 percent for the first six years and 7 percent for all subsequent years, what is the value of thepolicy at the child's 65th birthdayNote: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.Child's 65th birthday$ 760$ 760$ 860$ 860$ 960$ 960

Future value refers to the value of the current asset at some future date affected by interest and…

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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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 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: $ 860 $ 860 $ 960 Future value $850 $ 1,060 $950 After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $360,000. The relevant interest rate is 10 percent for the first six years and 7 percent for all subsequent years. Find the future value of the payments at the child's 65th birthday. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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