Determining the Cost of Insurance. Suppose you are 45 and have a $50,000 face amount, 15-year, limited-payment, participating policy (dividends will be used to build up the cash value of the policy). Your annual premium is $1,000. The cash value of the policy is expected to be $12,000 in 15 years. Using time value of money and assuming you could invest your money elsewhere for a 7 percent annual yield, calculate the net cost of insurance. Use an interest factor of 25.13 to calculate the Time Value of Money of the annual premium of a $1,000.
Determining the Cost of Insurance. Suppose you are 45 and have a $50,000 face amount, 15-year, limited-payment, participating policy (dividends will be used to build up the cash value of the policy). Your annual premium is $1,000. The cash value of the policy is expected to be $12,000 in 15 years. Using time value of money and assuming you could invest your money elsewhere for a 7 percent annual yield, calculate the net cost of insurance. Use an interest factor of 25.13 to calculate the Time Value of Money of the annual premium of a $1,000.
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 102.
Subject:- finance
Transcribed Image Text:Determining the Cost of Insurance.
Suppose you are 45 and have a $50,000 face amount, 15-year, limited-payment, participating policy (dividends will be used to build
up the cash value of the policy). Your annual premium is $1,000. The cash value of the policy is expected to be $12,000 in 15 years.
Using time value of money and assuming you could invest your money elsewhere for a 7 percent annual yield, calculate the net cost of
insurance.
Use an interest factor of 25.13 to calculate the Time Value of Money of the annual premium of a $1,000.
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