Chapter 3

Nonlevel annuities

Geometric

An insurance company has an obligation to pay the medical costs for a claimant at yearly intervals. Annual claim costs today are 6000 and medical inflation is expected to be 8.5% per year. The claimant will receive 15 payments where the first claim payment is to be made one year from today. Calculate the present value of the obligation using an annual effective interest rate of 6%