Question

In: Finance

1. You are thinking about buying an insurance product with the following specifications: the offered insurance...

1. You are thinking about buying an insurance product with the following specifications: the offered insurance product requires you to make payments semi-annually of $50 and do so for the next 20 years (first payment six months from today.). if your required rate of return is 6% per year (i.e. effective), what amount of money should the insurance product offer to pay you at the end of 20 years. Answer explained in Financial Calculator format would be appreciated.

Solutions

Expert Solution

This question is an application of FV of annuity.

It is a semi-annual annuity that lasts for 20 years and has a rate of return of 6%.

Let us define the inputs:

PV = 0, n = 20 * 2 = 40 semi-nnual periods, i/Y = 6%/2 = 3% semi-annually, PMT = - $50 (negative sign indicate it is an out flow)

Step for financial calculator:

Step 1: Clear TVM worksheet first. [2nd] [CLR TVM] [2nd] [Quit]

Step 2: Enter 50 through numeric keypad. Press [+/-] to make it -50. Press [PMT]

Step 3: Enter 40 through numeric keypad. Press [N]

Step 4: Enter 3 through numeric keypad. Press [i/Y]

Step 5: Enter 0 through numeric keypad. Press [PV]

Step 5: Press [CPT][FV]. This would display FV = 3,770.06...

Hence, answer is $3,770.96


Related Solutions

Allen Benedict is thinking of buying an apartment complex that is offered for sale by the...
Allen Benedict is thinking of buying an apartment complex that is offered for sale by the firm of Getz and Fowler. The price, $2.25 million, equals the property's market value. The following statement of income and expense is presented for Benedict's consideration: The St. George Apartments Prior Year's Operating Results, Presented by Gertz and Fowler, Brokers 30units, all 2-bedroom apartments, $975/month $351,000 water & dryer rentals 10,000 gross annual income $361,000 Less operating expenses: Manager's salary $10,000 Maintenance staff (1...
It is early 2015, and you are thinking about buying some Greek bonds. a. You know...
It is early 2015, and you are thinking about buying some Greek bonds. a. You know that Greek bonds have very risky. Why would you still want to buy them, given that there is a high chance of default and non-payment? b. For the following situations, sketch a demand and supply diagram and explain what happens with the 1) price, 2) quantity of bonds sold and 3) the interest rate. Write 1-2 sentences to explain. 1. There are protests in...
Imagine you were a consumer thinking about buying a 3-D TV. 1. First, quickly at a...
Imagine you were a consumer thinking about buying a 3-D TV. 1. First, quickly at a glance, what TV do you think you would buy? 2.On what criteria do you think you based that decision? Try these decision making processes, see what brand results for each, and see how confident you feel about the resulting brand suggested from each approach: 3. What attribute do you find least informative? Eliminate that row. Continue to do so until a clear brand winner...
You are thinking about buying a piece of art that costs $50,000. The art dealer is...
You are thinking about buying a piece of art that costs $50,000. The art dealer is proposing the following? deal: He will lend you the? money, and you will repay the loan by making the same payment every two years for the next 10 years? (i.e., a total of 5 ?payments). If the interest rate is 7% per? year, how much will you have to pay every two? years?
You are thinking about buying a piece of art that costs $20,000. The art dealer is...
You are thinking about buying a piece of art that costs $20,000. The art dealer is proposing the following deal: He will lend you the money, and you will repay the loan by making the same payment every two years for the next 30 years. If the interest rate is 10% per year, how much will you have to pay every two years?
8.3 Assume that you are thinking of buying a default-free bond. Specifically, you’re thinking of buying...
8.3 Assume that you are thinking of buying a default-free bond. Specifically, you’re thinking of buying a bond issued by Risklessco, a company that is considered default-free by all major bond rating firms. You will select one of the following three bonds, which are identical except for the special features listed. Bond Face Value Maturity Coupon rate (paid annually) Yield to Maturity* Special features Price A 1000 20 years 5.5% 5% None ? B 1000 20 years 5.5% 5% Callable...
You are thinking about buying a bond and you want to consider your interest rate exposure....
You are thinking about buying a bond and you want to consider your interest rate exposure. The bond in question is a semiannual note issued by Bank of America that has a $1,000 face value, four years left until maturity and pays a coupon rate of 5.265%. It is currently yielding 6.724%. Because of a slowing economy, you expect a 60 basis point parallel downward shift in the yield after the next Fed meeting. Calculate the following: Price, duration, modified...
Suppose that you are thinking about buying a car and have narrowed down your choices to...
Suppose that you are thinking about buying a car and have narrowed down your choices to two options. The new car option: the new car costs $26,000 and can be financed with a four-year loan at 7.54%. The used car option: a three-year old model of the same car costs $14,000 and can be financed with a three-year loan at 7.07%. What is the difference in monthly payments between financing the new car and financing the used car? Use PMT...
1.Victor is thinking about buying a $1,000 bond that has a 7% semiannual coupon and 14...
1.Victor is thinking about buying a $1,000 bond that has a 7% semiannual coupon and 14 years to maturity.  The expected rate in the marketplace for investments similar to this is 8%. Will this bond be a premium or discount bond? __________________ What is the present value of the coupon stream? ________________ What is the present value of the face value? ____________________ What is the total value of the bond? __________________________ If the bond is priced at 98, should Victor buy...
You are thinking about starting a new business that makes and sells a product similar to...
You are thinking about starting a new business that makes and sells a product similar to Red Bull. Why is this magical drink that “gives you wings” under government scrutiny in several countries? What are the ethical issues surrounding making and selling products that may or may not be harmful to a person's health?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT