Question
An insurance company is considering the introduction of an investment-only product that provides a claim based on the accumulated value of premiums paid by a
An insurance company is considering the introduction of an investment-only product that provides a claim based on the accumulated value of premiums paid by a policyholder. Policyholders would pay annual premiums of X at Year 0, 1, 2, ..., n -1 and would receive a claim equal to the accumulated value of the premium payments at Year n . Unless told otherwise, for the following questions use an interest rate of 4% per annum and assume that n=25. Assume also that, for the moment, and until told otherwise, policyholders do not die during the 25 year policy period.
Question 3
A policyholder is wishing to receive a claim payment of $300,000. Calculate the value of the premium payment X , that will provide this claim payment.
Question 4
All other things remaining equal, what impact would a value of n= 30 instead of n= 25 have on the calculated value of X in Question 3 for a claim payment of $300,000?
A) X is higher when n =30 compared to n =25
B) X is the unchanged when n= 30 compared to n =25
C) X is lower when n= 30 compared to n =25
NOTE:(I put tow Questions b.c it's related )
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