1. An insurance company is offering a new policy for its customers. Typically the policy is bought by a parent or grandparent for a child at the child 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:$1,000

Second birthday:$1,000

Third birthday:$1,200

Fourth birthday:$1,200

Fifth birthday:$1,500

Sixth birthday:$1,500

After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she received $600,000. If the relevant interest rate is 10 percent for the first six years and 8 percent for all subsequent years, is the policy worth buying? Show your work.

1. First compute the future value in year 6 of the 6 payments by finding the future value in year 6 of each payment and add them up. Use 10% annual return.

2. Find the future value in year 65 (i.e., t = 59) of the lump sum from (1). Use 8% annual return.

3. Compare your answer from (2) to $600,000. If your answer from (2) is less (greater) than $600,000 then the insurance policy is worth (not worth) buying.