Prudent policy life insurance co. offers a 10 year term life insurance policy with a $250000...

Prudent policy life insurance co. offers a 10 year term life insurance policy with a $250000 benefit and annual premiums of $200, paid at the beginning of each year. If prudent can earn 8% on invested capital, what is the present value to the firm of the premiums from one policy, assuming the policy holder outlives the policy term?

Solutions

Expert Solution

Annual premium = $200

Time Period = 10 years

Interest Rate ,= 8%

Calculating Present Value of Premium,

Using TVM Calculation,

PV = BEG[FV =0, PMT = 200, N = 10, I = 0.08]

PV = $1,449.38

Present Value of Premium = $1,449.38

jeff jeffy answered 1 year ago

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