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Suppose you are 45 and have a $410,000 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 $1,435. The cash value of the policy is expected to be $16,400 in 15 years. Using time value of money and assuming you could invest your money elsewhere for a 7 percent annual yield. I really need help in calculating the net cost of insurance.

Suppose you are 45 and have a $410,000 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 $1,435. The cash value of the policy is expected to be $16,400 in 15 years. Using time value of money and assuming you could invest your money elsewhere for a 7 percent annual yield. I really need help in calculating the net cost of insurance.

Essentials Of Investments
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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Suppose you are 45 and have a $410,000 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 $1,435. The cash value of the policy is expected to be $16,400 in 15 years. Using time value of money and assuming you could invest your money elsewhere for a 7 percent annual yield.

I really need help in calculating the net cost of insurance.

Note: Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round time value factor to 3 decimal places and final answer to the nearest whole number.

Exhibit 1-B Future Value (Compounded Sum) of $1 Paid In at the End of Each Period for a Given Number of Time Periods (an Annuity) Period 1 3% 1.000 2.030 4% 1.000 2.040 3.091 3.122 4.184 4.246 5.309 5.416 6.468 6.633 7.662 7.898 8.892 9.214 10.159 11.464 12.808 14.192 15.618 17.086 18.599 20.157 21.762 23.414 25.117 26.870 36.459 47.575 75.401 112.797 2 3 4 5 6 7 8 9 OHNMASSI 10 11 12 13 14 15 16 17 18 19 20 25 30 40 50 1% 1.000 2.010 3.030 4.060 5.101 6.152 7.214 8.286 9.369 10.462 11.567 12.683 13.809 14.947 16.097 17.258 18.430 19.615 20.811 22.019 28.243 34.785 48.886 64.463 2% 1.000 2.020 3.060 4.122 5.204 6.308 7.434 8.583 9.755 10.950 12.169 13.412 14.680 15.974 17.293 18.639 20.012 21.412 22.841 24.297 32.030 40.568 60.402 84.579 10.583 12.006 13.486 15.026 16.627 18.292 20.024 21.825 23.698 25.645 27.671 29.778 41.646 56.085 95.026 152.667 5% 1.000 2.050 3.153 4.310 5.526 6.802 8.142 9.549 11.027 12.578 14.207 15.917 17.713 19.599 21.579 23.657 25.840 28.132 30.539 33.066 47.727 66.439 120.800 209.348 6% 1.000 2.060 3.184 4.375 5.637 6.975 8.394 9.897 11.491 13.181 14.972 16.870 18.882 21.015 23.276 25.673 28.213 30.906 33.760 36.786 54.865 79.058 154.762 290.336 7% 1.000 2.070 3.215 4.440 5.751 7.153 8.654 10.260 11.978 13.816 15.784 17.888 20.141 22.550 25.129 27.888 30.840 33.999 37.379 40.995 63.249 94.461 199.635 406.529 8% 1.000 2.080 3.246 4.506 5.867 7.336 8.923 10.637 12.488 14.487 16.645 18.977 21.495 22.953 24.215 26.019 29.361 27.152 30.324 33.003 36.974 33.750 37.450 41.301 41.446 46.018 45.762 51.160 73.106 84.701 113.283 136.308 337.882 259.057 573.770 815.084 1,163.909 1,668.771 9% 1.000 2.090 3.278 4.573 5.985 7.523 9.200 11.028 13.021 15.193 17.560 20.141 10% 1.000 2.100 3.310 4.641 6.105 7.716 9.487 11.436 13.579 15.937 18.531 21.384 24.523 27.975 31.772 35.950 40.545 45.599 51.159 57.275 98.347 164.494 442.593 11% 1.000 2.110 3.342 4.710 6.228 7.913 9.783 11.859 14.164 16.722 19.561 22.713 26.212 30.095 34.405 39.190 44.501 50.396 56.939 64.203 114.413 199.021 581.826
Transcribed Image Text:Exhibit 1-B Future Value (Compounded Sum) of $1 Paid In at the End of Each Period for a Given Number of Time Periods (an Annuity) Period 1 3% 1.000 2.030 4% 1.000 2.040 3.091 3.122 4.184 4.246 5.309 5.416 6.468 6.633 7.662 7.898 8.892 9.214 10.159 11.464 12.808 14.192 15.618 17.086 18.599 20.157 21.762 23.414 25.117 26.870 36.459 47.575 75.401 112.797 2 3 4 5 6 7 8 9 OHNMASSI 10 11 12 13 14 15 16 17 18 19 20 25 30 40 50 1% 1.000 2.010 3.030 4.060 5.101 6.152 7.214 8.286 9.369 10.462 11.567 12.683 13.809 14.947 16.097 17.258 18.430 19.615 20.811 22.019 28.243 34.785 48.886 64.463 2% 1.000 2.020 3.060 4.122 5.204 6.308 7.434 8.583 9.755 10.950 12.169 13.412 14.680 15.974 17.293 18.639 20.012 21.412 22.841 24.297 32.030 40.568 60.402 84.579 10.583 12.006 13.486 15.026 16.627 18.292 20.024 21.825 23.698 25.645 27.671 29.778 41.646 56.085 95.026 152.667 5% 1.000 2.050 3.153 4.310 5.526 6.802 8.142 9.549 11.027 12.578 14.207 15.917 17.713 19.599 21.579 23.657 25.840 28.132 30.539 33.066 47.727 66.439 120.800 209.348 6% 1.000 2.060 3.184 4.375 5.637 6.975 8.394 9.897 11.491 13.181 14.972 16.870 18.882 21.015 23.276 25.673 28.213 30.906 33.760 36.786 54.865 79.058 154.762 290.336 7% 1.000 2.070 3.215 4.440 5.751 7.153 8.654 10.260 11.978 13.816 15.784 17.888 20.141 22.550 25.129 27.888 30.840 33.999 37.379 40.995 63.249 94.461 199.635 406.529 8% 1.000 2.080 3.246 4.506 5.867 7.336 8.923 10.637 12.488 14.487 16.645 18.977 21.495 22.953 24.215 26.019 29.361 27.152 30.324 33.003 36.974 33.750 37.450 41.301 41.446 46.018 45.762 51.160 73.106 84.701 113.283 136.308 337.882 259.057 573.770 815.084 1,163.909 1,668.771 9% 1.000 2.090 3.278 4.573 5.985 7.523 9.200 11.028 13.021 15.193 17.560 20.141 10% 1.000 2.100 3.310 4.641 6.105 7.716 9.487 11.436 13.579 15.937 18.531 21.384 24.523 27.975 31.772 35.950 40.545 45.599 51.159 57.275 98.347 164.494 442.593 11% 1.000 2.110 3.342 4.710 6.228 7.913 9.783 11.859 14.164 16.722 19.561 22.713 26.212 30.095 34.405 39.190 44.501 50.396 56.939 64.203 114.413 199.021 581.826
Exhibit 1-A Future Value (Compounded Sum) of $1 after a Given Number of Time Periods 1% 1.010 7% 1.070 1.020 1.145 1.030 1.225 1.041 1.311 1.051 1.403 1.062 1.501 1.072 1.606 1.083 1.718 1.094 1.838 1.105 1.967 1.116 2.105 1.127 2.252 1.138 2.410 1.149 2.579 2.759 2.952 Period 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 85 25 30 40 50 1.161 1.173 1.184 1.196 1.208 1.220 1.282 1.348 ... 1.489 1.645 2% 1.020 1.040 1.061 1.082 1.104 1.126 1.149 1.172 1.195 1.219 1.243 1.268 1.294 1.319 1.346 1.373 1.400 1.428 1.457 1.486 1.641 1.811 2.208 2.692 3% 1.030 1.061 1.093 1.126 1.159 1.194 1.230 1.267 1.305 1.344 1.384 1.426 1.469 1.513 1.558 1.605 1.653 1.702 1.754 1.806 2.094 2.427 3.262 4.384 4% 1.040 1.082 1.125 1.170 1.217 1.265 1.316 1.369 1.423 1.480 1.539 1.601 1.665 1.732 1.801 1.873 1.948 2.026 2.107 2.191 2.666 3.243 4.801 7.107 5% 1.050 1.103 1.158 1.216 1.276 1.340 1.407 1.477 1.551 1.629 1.710 1.796 1.886 1.980 2.079 2.183 2.292 2.407 2.527 2.653 3.386 4.322 7.040 11.467 6% 1.060 1.124 1.191 1.262 1.338 1.419 1.504 1.594 1.689 1.791 1.898 2.012 2.133 2.261 2.397 2.540 2.693 2.854 3.026 3.207 4.292 5.743 10.286 18.420 3.159 3.380 3.617 3.870 5.427 7.612 8% 1.080 1.166 1.260 1.360 1.469 1.587 1.714 1.851 1.999 2.159 2.332 2.518 2.813 2.720 3.066 2.937 3.342 3.172 3.642 3.426 3.970 3.700 4.328 3.996 4.717 4.316 5.142 4.661 5.604 6.848 8.623 10.063 13.268 21.725 31.409 9% 1.090 1.188 1.295 1.412 1.539 1.677 1.828 1.993 2.172 2.367 2.580 14.974 29.457 46.902 10% 1.100 1.210 1.331 11% 1.110 1.232 1.368 1.518 1.685 1.870 2.076 2.305 2.558 2.839 3.152 3.498 3.883 4.310 4.177 4.785 4.595 5.311 5.054 5.895 5.560 6.544 6.116 7.263 6.727 8.062 10.835 13.585 17.449 22.892 45.259 65.001 74.358 117.391 184.565 1.464 1.611 1.772 1.949 2.144 2.358 2.594 2.853 3.138 3.452 3.797
Transcribed Image Text:Exhibit 1-A Future Value (Compounded Sum) of $1 after a Given Number of Time Periods 1% 1.010 7% 1.070 1.020 1.145 1.030 1.225 1.041 1.311 1.051 1.403 1.062 1.501 1.072 1.606 1.083 1.718 1.094 1.838 1.105 1.967 1.116 2.105 1.127 2.252 1.138 2.410 1.149 2.579 2.759 2.952 Period 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 85 25 30 40 50 1.161 1.173 1.184 1.196 1.208 1.220 1.282 1.348 ... 1.489 1.645 2% 1.020 1.040 1.061 1.082 1.104 1.126 1.149 1.172 1.195 1.219 1.243 1.268 1.294 1.319 1.346 1.373 1.400 1.428 1.457 1.486 1.641 1.811 2.208 2.692 3% 1.030 1.061 1.093 1.126 1.159 1.194 1.230 1.267 1.305 1.344 1.384 1.426 1.469 1.513 1.558 1.605 1.653 1.702 1.754 1.806 2.094 2.427 3.262 4.384 4% 1.040 1.082 1.125 1.170 1.217 1.265 1.316 1.369 1.423 1.480 1.539 1.601 1.665 1.732 1.801 1.873 1.948 2.026 2.107 2.191 2.666 3.243 4.801 7.107 5% 1.050 1.103 1.158 1.216 1.276 1.340 1.407 1.477 1.551 1.629 1.710 1.796 1.886 1.980 2.079 2.183 2.292 2.407 2.527 2.653 3.386 4.322 7.040 11.467 6% 1.060 1.124 1.191 1.262 1.338 1.419 1.504 1.594 1.689 1.791 1.898 2.012 2.133 2.261 2.397 2.540 2.693 2.854 3.026 3.207 4.292 5.743 10.286 18.420 3.159 3.380 3.617 3.870 5.427 7.612 8% 1.080 1.166 1.260 1.360 1.469 1.587 1.714 1.851 1.999 2.159 2.332 2.518 2.813 2.720 3.066 2.937 3.342 3.172 3.642 3.426 3.970 3.700 4.328 3.996 4.717 4.316 5.142 4.661 5.604 6.848 8.623 10.063 13.268 21.725 31.409 9% 1.090 1.188 1.295 1.412 1.539 1.677 1.828 1.993 2.172 2.367 2.580 14.974 29.457 46.902 10% 1.100 1.210 1.331 11% 1.110 1.232 1.368 1.518 1.685 1.870 2.076 2.305 2.558 2.839 3.152 3.498 3.883 4.310 4.177 4.785 4.595 5.311 5.054 5.895 5.560 6.544 6.116 7.263 6.727 8.062 10.835 13.585 17.449 22.892 45.259 65.001 74.358 117.391 184.565 1.464 1.611 1.772 1.949 2.144 2.358 2.594 2.853 3.138 3.452 3.797
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