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2.13 An insurance company offers a capital redemption policy whereby the policyholder pays annual premiums (in advance) of 3368.72 for 25 years, and, in
2.13 An insurance company offers a "capital redemption policy" whereby the policyholder pays annual premiums (in advance) of 3368.72 for 25 years, and, in return, receives a redemption amount of 250,000 one year after the 25th premium is paid. The insurer has determined that administrative expenses are 20% of the first premium and 10% of all remaining premiums, and these expens- es are incurred at the time the premium is paid. The insurer an- ticipates investing the net (after expenses) premiums received at an effective annual interest rate of 12.5%. What is the insurer's accumulated profit just after the policy matures and the redemp- tion amount of 250,000 is paid? Find the effective annual rate of return earned by the policyholder for the 25-year period.
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