5. 10.27 To cover themselves from lawsuits, most medical doctors in private practice carry liability insurance. Assume the annual premium for liability insurance costs $40,000 today for a coverage of $25 million.

(a) If the premium increases only by the inflation rate of 6% per year when the market rate of return is 10% per year, estimate the annual premium 10 years from now.

(b) Dr. Kirchner is complaining that only 5 years ago, the same coverage cost $18,000 per year. Use a spreadsheet to determine the rate of inflation over the last 5-year period.Page 324