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A financial regulator has brought in a new set of regulations and wishes to assess the cost of them. It intends to conduct an analysis
A financial regulator has brought in a new set of regulations and wishes to assess the cost of them. It intends to conduct an analysis of the costs and benefits of the new regulations in their first twenty years. The costs are estimated to be as follows: The cost to companies who will need to devise new policy terms and computer systems is expected to be incurred at a rate of 50m in the first year increasing by 3% per annum aver the twenty year period. The cost to financial advisers who will have to set up new computer systems and spend more time filling in paperwork is expected to be incurred at a rate of 60m in the first year. 19m in the second year. 18m in the third year, reducing by Elm every year until the last year. when the cost incurred will be at a rate of 1m. The cost to consumers who will have to spend more time filling in paperwork and talking to their financial advisers is expected to be incurred at a rate of 10m in the first year, increasing by 3% per annum over the twenty year period. The benefits are estimated as follows: The benefit to consumers who are less likely to buy inappropriate policies is estimated to be received at a rate of 30m in the first year. 33m in the second year. E36m in the third year and so on, rising by 3m per year until the end of twenty years. The benefit to companies who will spend less time dealing with complaints from customers is estimated to be received at a rate of 12m per annum for twenty years. . Calculate the net present value of the benefit or cost of the regulations in their first twenty years at a rate of interest of 4% per annum effective. Assume that all costs and benefits occur continuously throughout the year. [12]
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