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ART II Valuation and Capital Budgeting 66. Future Value and Multiple Cash Flows An insurance company is offering a new policy to its customers. Typically
ART II Valuation and Capital Budgeting 66. Future Value and Multiple Cash Flows An insurance company is offering a new policy to its customers. Typically the policy is bought by a parent or grandparent for a child at the child's birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company First birthday: Second birhday $00 Third birthday: Fourth birthday: Fifth birthday: Sixth birthday $500 $600 $700 $800 $900 After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $250,000. If the relevant interest rate is 11 percent for the first six years and 7 percent for all subsequent years, is the policy worth buying
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