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what is the expected present value of the benefit from the policy?

what is the expected present value of the benefit from the policy?

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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An ultimate survival model is given by the survival function So(z) = (1-3)¹/5 A person who has a certain type of surgery has a 77.5% probability of surviving for one year after the surgery and a 50.375% of surviving for two years after the surgery. A patient who survives for two years after the surgery is considered fully healed, and all future survival probabilities are given by the ultimate survival model. A person aged 62 who is scheduled to have this operation purchased a $84000 four-year endowment life insurance policy with benefit payable at the end of the year of death. If the policy was purchased immediately before the policy owner had the surgery, what is the expected present value of the benefit from the policy? Assume an effective annual interest rate of 4.5% EPV = Note: Round your answer to three decimal places.
Transcribed Image Text:An ultimate survival model is given by the survival function So(z) = (1-3)¹/5 A person who has a certain type of surgery has a 77.5% probability of surviving for one year after the surgery and a 50.375% of surviving for two years after the surgery. A patient who survives for two years after the surgery is considered fully healed, and all future survival probabilities are given by the ultimate survival model. A person aged 62 who is scheduled to have this operation purchased a $84000 four-year endowment life insurance policy with benefit payable at the end of the year of death. If the policy was purchased immediately before the policy owner had the surgery, what is the expected present value of the benefit from the policy? Assume an effective annual interest rate of 4.5% EPV = Note: Round your answer to three decimal places.
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