Leonard Wu who is 50 years old, is considering buying a 5-year term life insurance policy on himself in favor of his son Ling Wu. Ling will be joining the 5-year double degree program at the University of Toronto one year from today. It is expected that the University's cost will be $80,000 per year. Leonard would like to have enough insurance so that if he dies today there is enough money to pay for 5 years of education. Similarly, if he dies one year from today there should be enough money to pay for the 4 years of education. Or if he dies 2 years from today, there should be enough money to pay for 3 years of education and so on. After completion of Ling's studies, life insurance will not be needed because Ling will be on his own. The appropriate interest rate is 3%.
1. Determine the net single premium Leonard will pay today to obtain this policy. Assume University costs will be paid at the beginning of the year and insurance benefits will be paid at the end of the year. You will need Appendix B2 from the textbook. It is also posted on Quercus under the Risk Management module.
2. Determine the annual premium Leonard will pay for the next 5 years.