Future Value and Multiple Cash Flows An insurance company is offering a new policy to its customers.
Question:
Future Value and Multiple Cash Flows 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 details of the policy are as follows: The purchaser
(say, the parent) makes the following six payments to the insurance company:
First birthday: $ 500 Second birthday: $ 600 Third birthday: $ 700 Fourth birthday: $ 800 Fifth birthday: $ 900 Sixth birthday: $1,000 After the child’s sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $275,000. If the relevant interest rate is 11 percent for the first six years and 7 percent for all subsequent years, is the policy worth buying?
Step by Step Answer:
Corporate Finance With Connect Access Card
ISBN: 978-1259672484
10th Edition
Authors: Stephen Ross ,Randolph Westerfield ,Jeffrey Jaffe