Jojo Klum purchases a life insurance policy from BetterLifeCo. JoJo will pay a premium of $125 every week on Friday, and in return, their beneficiaries will receive a payment of $1,000,000 on the second Friday after JoJo dies.
BetterLifeCo invests the premiums it receives and expects to earn interest (net of any costs) of j52 = 10.4% p.a.
a) Illustrate all the cash flows associated with this scenario as a fully labeled timeline diagram. (Include JoJo’s death as an event in the timeline.)
b) If JoJo lives another 25 years, determine the amount that BetterLifeCo will have accumulated from JoJo’s premiums, at the time of JoJo’s death. Enter this value to the nearest cent