An insurance company is offering a new policy to its customers. Typically, the p

Question

An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child's birth. The details of the policy are as follows: The purchaser (say the parent) makes the following six payments to the insurance company: First birthday: Second birthday: Third birthday: Fourth birthday: Fifth birthday: Sixth birthday: $ 890 S 890 $ 990 $1,090 $950 After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $390,000. The relevant interest rate is 11 percent for the first six years and 7 percent for all subsequent years. Find the future value of the payments at the child's 65th birthday. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Future value

Explanation / Answer

The future value of the payment for six years equals

FV = $ 890 (1+0.11)6+  $ 890 (1+0.11)5+ $ 900 (1+0.11)4+ $ 850 (1+0.11)3+ $ 1,090  (1+0.11)2+ $ 950 (1+0.11)1

FV = $ 8090.61

The future value of the investment is calculated as follows

FV = $ 8090.61 ( 1+0.07)59

FV = $ 438,151.35

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.