Question

In: Finance

Bob is considering purchasing a two-year endowment policy with a $1,000 face amount at the beginning...

Bob is considering purchasing a two-year endowment policy with a $1,000 face amount at the beginning of his 50. The probability of Bob dying between 50 and 51 is 0.00550, and that between 51 and 52 is 0.00611. The annual interest rate is 6 percent. (1) Calculate the net level premium for this two-year endowment policy. (2) Show that this premium is just sufficient to fund benefits over the two years at the assumed interested and mortality rates. (3) Ignoring expenses, what would the policy’s cash value equal after one year? (Round to two decimal places when calculating your answer.Bob is considering purchasing a two-year endowment policy with a $1,000 face amount at the beginning of his 50. The probability of Bob dying between 50 and 51 is 0.00550, and that between 51 and 52 is 0.00611. The annual interest rate is 6 percent. (1) Calculate the net level premium for this two-year endowment policy. (2) Show that this premium is just sufficient to fund benefits over the two years at the assumed interested and mortality rates. (3) Ignoring expenses, what would the policy’s cash value equal after one year? (Round to two decimal places when calculating your answer.

Solutions

Expert Solution

jeff jeffy answered 5 months ago
Next > < Previous

Related Solutions

Betty and Bob a 2-year coupon bond with a face and maturity value of $1,000 and...
Betty and Bob a 2-year coupon bond with a face and maturity value of $1,000 and a coupon rate of 8% per annum payable semiannually and a yield to maturity of 10% per annum compounded semiannually. A. Algebraically find the price of the bond. Your final answer should be correct to 2 places after the decimal point. The price of the portfolio is __________________. B. Algebraically find the exact Macaulay Duration of the portfolio. Your final answer should be correct...
A 30 year corporate bond with a face amount of $1,000 and a 5.6% coupon (paid...
A 30 year corporate bond with a face amount of $1,000 and a 5.6% coupon (paid semi-annually) was issued 15 years ago. Given a 30 BPS, what is its effective duration? Assume the current yield to maturity is 6.0%. Show all work.
A 3% coupon, $1,000 face amount, 5-year bond is convertible into 25 shares of company stock....
A 3% coupon, $1,000 face amount, 5-year bond is convertible into 25 shares of company stock. The current stock price is $30. At maturity, the stock price is $50. Assuming the bond is bought at issuance for $1,000, i.e. par, and interest is paid semi-annually, the total annual return for the investor will be:
A 3% coupon, $1,000 face amount, 5-year bond is convertible into 25 shares of company stock....
A 3% coupon, $1,000 face amount, 5-year bond is convertible into 25 shares of company stock. The current stock price is $30. At maturity, the stock price is $50. Assuming the bond is bought at issuance for $1,000, i.e. par, and interest is paid semi-annually, the total annual return for the investor will be: 3.00% 3.62% 7.24% 5.40%
Robert is considering a 20-year renewable term insurance policy,with a face vale of $500,000 for...
Robert is considering a 20-year renewable term insurance policy, with a face vale of $500,000 for a $400 yearly premium. However, his insurance agent told him of a new option where he can receive his accumulative premium payments ($400 a year for 20 years) at the end of the policy. This feature will change the yearly premium from $400 to $650. Should Robert accept this option if his after-tax rate of return is 4.56%? (Note: His insurance agent reminded him...
What is the tax significance of the face amount of a life insurance​ policy? A. The...
What is the tax significance of the face amount of a life insurance​ policy? A. The face amount of life insurance is excluded from the gross income of a beneficiary if the amount is paid upon the death of the insured and the beneficiary is any corporation. B. The face amount of life insurance is included in the gross income of a beneficiary if the amount is paid prior to death of the insured. If the amount paid exceeds the...
You are considering buying a risky bond. The bond has a $1,000 face value, a 4-year...
You are considering buying a risky bond. The bond has a $1,000 face value, a 4-year maturity, and a coupon rate of 8%. You believe the probability the company will survive to pay off the bond is 90%. You also believe there is a 10% probability the company will default within the first 2 months, in which case you will be able to recover 35% of the bond’s face value at the end of year 4. The bond is selling...
A investor is considering purchasing a $1,000 bond with an 8% coupon rate. The bond was...
A investor is considering purchasing a $1,000 bond with an 8% coupon rate. The bond was issued 7 years ago with a 30 year original maturity. If the investor requires a return of 7% based on the riskiness oft he bond, how much should she pay for the bond? 2. As of now Treasury bills are returning 2% and the S&P 500 is returning 10%.You are considering purchasing a stock in CCC firm. The firm has an estimated beta of...
A two-year, 8% coupon bond with a face value of $1,000 has a current price of...
A two-year, 8% coupon bond with a face value of $1,000 has a current price of $1,000. Assume that the bond makes annual coupon payments. The term structure of interest rates is flat. (a) What is the bond’s yield-to-maturity? (b) Using the concept of duration, find the approximate percentage change in the price of the bond if the yield-to-maturity drops by 1%. (c) Compared with the coupon bond in this problem, would the price of a two-year, U.S. Treasury STRIP...
Company XYZ is considering issuing 10-year corporate bonds. The face value is $1,000 and coupon rate...
Company XYZ is considering issuing 10-year corporate bonds. The face value is $1,000 and coupon rate is 5.5% paid semi-annually. If investors’ required return on similar corporate bonds is 8%, how many does XYZ need to issue in order to raise $2,000,000 (assuming no fees or any issuing costs). (10 points)
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT