Question
You have just purchased a life insurance policy that requires you to make 40 semi-annual payments of $350 each, where the first payment is due
You have just purchased a life insurance policy that requires you to make 40 semi-annual payments of $350 each, where the first payment is due in 6 months. the insurance company has guaranteed that these payments will be invested to earn you an effective annual rate of 8.16 percent, although interest is to be compounded semi-annually. At the end of 20years (40 payments), the policy will mature. The insurance company will pay out the proceeds of this policy to you in 10 equal payments, where the first payment to be made one year after the policy matures. If the effective interest rate remains at 8.16 percent, how much will you receive during each of the 10years? (hint: (a) compute future value of your 40 payments, (b) Compute the amount of 10 annuity payments whose present value is the FV you found in (a). Justify your decision
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