Raphael Leung is 25 years old and he is considering purchasing life insurance. A sales person from Matlifer HK provides him with the following information. Year Total Premium Cash Value Death Benefit 40,400 80,800 80,800 Payment 40,000 80,000 80,000 4 80,000 82,500 5 80,000 89,200 Note: The death benefit is equal to the maximum of cash value and 101% of paid premium. 1 23 29,600 65,600 74,000 82,500 89,200 (a) The cash value of the insurance plan is less than the total premium payment for years 1-3. What account for the difference between the two values? (3%) (b) Is this product mainly for death protection or for saving purpose? (2%) (c) Why must the death benefit increase with the cash value from year 3 to 5? (3%) (d) Provide two reasons for why cash value is low in the first year. (2%) (e) Raphael Leung wants to use this table to assess the expense cost of the insurer. What additional information is needed to calculate the expense cost of the insurer? (3%) (f) The sales person tells Raphael Leung that his plan provides him an annual rate of return of (89200/80000-1)/5-2.3%. What's wrong with this argument? List at least two fallacies of this statement. (4%) (g) Suppose Raphael survives the 5-year policy period, can you lay out a formula to estimate the average annual return (r) of holding the policy in the 5-year period? You do not need to solve the equation. (3%)