Question
In: Finance
Standard Insurance is developing a long-life insurance policy for people who outlive their retirement nest egg....
Standard Insurance is developing a long-life insurance policy for people who outlive their retirement nest egg. The policy will pay out $280 comma 000 on your 85 th birthday. You must buy the policy on your 60 th birthday. The insurance company can earn 9% on the purchase price of your policy. What is the minimum purchase price the insurance company should charge for this policy?
Solutions
Expert Solution
Payment on 85th birthday = $280,000
Interest rate = 9.00%
Period = 25 years
Present value of payment = Future payment / (1 + Interest
rate)^Period
Present value of payment = $280,000 / 1.09^25
Present value of payment = $280,000 * 0.115968
Present value of payment = $32,471
So, insurance company must charge minimum price of $32,471 for this policy
jeff jeffy answered 2 years agoRelated Solutions
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