12. 70.

Future value and multiple cash flows [LO 6.1] 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: $700 Second birthday: $700 Third birthday: $800 Fourth birthday: $800 Fifth birthday: $900 Sixth birthday: $900 1.
After the child’s sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $300 000. If the relevant interest rate is 10 per cent for the first six years and 7 per cent for all subsequent years, is the policy worth buying?