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.

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.

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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Similar questions

You have purchased a guaranteed investment contract (GIC) from an insurance firm that promises to pay you a 5% compound rate of return per year for 6 years. If you pay $20,000 for the GIC today and receive no interest along the way, you will get __________ in 6 years (to the nearest dollar). (Round your answer to the nearest whole dollar).
Suppose you want to purchase a home for $375,000 with a 30-year mortgage at 5.14% interest. Suppose also that you can put down 25%. What are the monthly payments? (Round your answer to the nearest cent.) $ What is the total amount paid for principal and interest? (Round your answer to the nearest cent.) $ What is the amount saved if this home is financed for 15 years instead of for 30 years? (Round your answer to the nearest cent.) $
You want to buy a $205,000 home. You plan to pay 10% as a down payment, and take out a 30 year loan at 4.15% interest for the rest. a) How much is the loan amount going to be? b) What will your monthly payments be? c) How much of the first payment is interest?
You plan to retire in 20 years. Use present value tables to calculate whether it is better for you tosave $25,000 a year for the last 10 years before retirement or $15,000 for each of the 20 years.Assume you are able to earn 10 percent interest on your investments. Round to the nearest dollar.
Suppose you want to purchase a home for $525,000 with a 30-year mortgage at 4.84% interest. Suppose also that you can put down 30%. What are the monthly payments? (Round your answer to the nearest cent.) $ What is the total amount paid for principal and interest? (Round your answer to the nearest cent.) $ What is the amount saved if this home is financed for 15 years instead of for 30 years? (Round your answer to the nearest cent.)
We suggest the use of a spreadsheet to create the amortization tables. You take out a 30-year mortgage for $80,000 at 9.25%, to be paid off monthly. Construct an amortization table showing how much you will pay in interest each year for the first 15 years and how much goes toward paying off the principal. If you sell your house after 15 years, how much will you still owe on the mortgage according to the amortization table? HINT [See Example 8.] (Round your answer to the nearest cent.) $
Use the savings plan formula to answer the following question. You put $300 per month in an investment plan that pays an APR of 3.5%. How much money will you have after 19 years? Compare this amount to the total deposits made over the time period.
C) What is the present value of $7,500 per year, at a discount rate of 8.5 percent, if the first payment is received 10 years from now and the last payment is received 25 years from now?You have signed up for your 401k and will deposit $750 into your 401k when you are paid at the end of each month. If you earn a compound annual rate of return of 6%, how much will you have in 15 years?What would your monthly car payment be if you financed a $35,000 car for 3 years at a rate of 6%?The appropriate discount rate for the following cash flows is 12 percent compounded quarterly. What is the present value of the cash flows? Year 1 CF=700, Year 2 CF=600, Year 3 CF=0, Year 4 CF=1000
You have a chance to buy an annuity that pays $25,000 at the beginning of each year for 10 years. You could earn 8.5% on your money in other investments with equal risk. What is the most you should pay for the annuity? You are not required to show calculations but you must list the inputs used such as N, PV, FV, etc. O $346,484.41 O $177,976.57 O $164,033.70

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