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QUESTION 5 Sinipha has a 15-year policy with Old Mutual. The illustrated growth rate is 6%...

QUESTION 5

Sinipha has a 15-year policy with Old Mutual. The illustrated growth rate is 6% p.a. compounded monthly and the premium increases every January 01 by 8%. The initial premium was $300 per month. Sinipha’ first monthly premium was deducted on January 31, 1997.

1. Determine the monthly premium in the last year.

2. Determine the maturity value. Duane recently bought VW Polo for $245 000. Assume that the Polo depreciates at 12% p.a. and that the prices of these Polo’s escalate annually by 14%. Also assume that the lifespan of this Polo is 20 years. Duane opened a sinking fund to replace this Polo after 7 years.

3. How much must Duane deposit monthly into the sinking fund to replace this Polo at the end of year 7 if the sinking fund grows at 8.5% p.a. compounded monthly? Assume that the old Polo will be used as a trade-in based on its book value.

4. Assume that Duane decided at the end of year 5 to replace this Polo. How much extra will he need to buy the new Polo cash?

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jeff jeffy answered 2 years ago
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