Question
-3- QUESTION 3: Anthony who just turned 45 is considering buying a $250,000 life insurance policy on himself in favour of his daughter Audrey. Audrey
-3-
QUESTION 3:
Anthony who just turned 45 is considering buying a $250,000 life insurance policy on himself in favour of his daughter Audrey. Audrey a high school student will be done with her University education in 6 years. After 6 years Anthony will no longer need life insurance because Audrey will be done with her university studies, and will be on her own. Anthony wants to pay a level premium. The appropriate interest rate is 5%. Determine the pure level premium per year.
QUESTION 4:
Teresa Choi is thinking of switching from Nova MasterCard to Brunswick VisaCard. Her average month-end balance on the credit card is $4,000, which she pays off on the last day of the grace period. Every winter she flies to California, and rent a car for two weeks for sightseeing. She keeps her extra cash in a savings account earning 3% p.a. Following are the relevant features of the two cards:
MasterCard VisaCard
Grace period 25 days 15 days
Rebate on every purchase1 1.5% 2%
Card fee at the beginning of year $110 $90
Annual interest rate on overdue balance 28% 20%
Collision damage waiver on rental cars2 yes no
Extended warranty3 yes yes
1 Paid at year-end,
2 Suppose car rental agencies charge $26 per day to insure against collision.
3 extends manufacturer's warranty by one year on the items purchased using VisaCard.
Maximum repair cost covered is $500 per year by MasterCard and $800 by VisaCard. Repair cost is reimbursed at the end of the year.
Which credit card is better for him? Do not ignore cash flows timing.
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