Consider an insurance policy that promises to pay the holder $972 per month for the next...

Consider an insurance policy that promises to pay the holder $972 per month for the next 20 years. The first payment will be one month after the purchase of the policy. (This type of policy is called a term annuity.) The appropriate discount rate is an APR of 6.52%, compounded monthly. What is the value of this policy? Round your answer to the nearest dollar.

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Expert Solution

Value of Policy = PV of Annuity = P*[1-{(1+i)^-n}]/i

Where, P = Annuity = 972, i = Interest Rate = 0.0652/12 = 0.005433, n = Number of Periods = 20*12 = 240

PV = 972*[1-{(1+0.005433)^-240}]/0.005433 = 972*0.72757/0.005433 = 130159.98 = $130160

jeff jeffy answered 2 years ago

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