Raphael Leung 1s 25 years old and he is considering purchasing life insurance. A sales person from Matlifer HK provides him with the following information. Year Total Premium Cash Value Death Payment Benefit 40,000 29,600 40,400 80,000 65,600 80,800 80,000 74,000 80,800 80,000 82,500 82,500 5 80,000 89,200 89,200 Note: The death benefit is equal to the maximum of cash value and 101% of paid premium. (a) The cash value of the insurance plan is less than the total premium payment for years 1-3. What account for the difference between the two values? (3%) (b) Is this product mainly for death protection or for saving purpose? (2%) (c) Why must the death benefit increase with the cash value from year 3 to 5? (3%) (d) Provide two reasons for why cash value is low in the first year. (2%) (e) Raphael Leung wants to use this table to assess the expense cost of the insurer. What additional information is needed to calculate the expense cost of the insurer? (3%) (f) The sales person tells Raphael Leung that his plan provides him an annual rate of return of (89200/80000-1)/5=2.3%. What's wrong with this argument? List at least two fallacies of this statement. (4%) (g) Suppose Raphael survives the 5-year policy period, can you lay out a formula to estimate the average annual return (r) of holding the policy in the 5-year period? You do not need to solve the equation. (3%)