Question
In: Finance
The Assurance Life Company is offering an insurance policy under either of the following two terms:...
The Assurance Life Company is offering an insurance policy under either of the following two terms:
a. Make a series of twelve $1,200 payments at the beginning of each of the next 12 years (the first payment being made today).
b. Make a single lump sum payment today of $10,000 and receive coverage for the next 12 years.
If you had investment opportunities offering an 8 percent annual return, which alternative would you prefer?
Solutions
Expert Solution
a.
| Discount rate | 8.0000% | ||
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year | Cumulative cash flow |
| 1,200.000 | 0 | 1,200.00 | 1,200.00 |
| 1,200.000 | 1 | 1,111.11 | 2,311.11 |
| 1,200.000 | 2 | 1,028.81 | 3,339.918 |
| 1,200.000 | 3 | 952.60 | 4,292.52 |
| 1,200.000 | 4 | 882.04 | 5,174.55 |
| 1,200.000 | 5 | 816.70 | 5,991.25 |
| 1,200.000 | 6 | 756.20 | 6,747.46 |
| 1,200.000 | 7 | 700.19 | 7,447.64 |
| 1,200.000 | 8 | 648.32 | 8,095.97 |
| 1,200.000 | 9 | 600.30 | 8,696.27 |
| 1,200.000 | 10 | 555.83 | 9,252.10 |
| 1,200.000 | 11 | 514.66 | 9,766.76 |
PV of the series payment = 9766.76
b. so the series payment is better since the PV is less than the lump sum of 10000
jeff jeffy answered 2 years agoRelated Solutions
Pico Simons has a life insurance policy on his own life with Assurance Life Insurance. In...
Pico Simons has a life insurance policy on his own life with
Assurance Life Insurance. In the event of his death, his sister
Amber will receive all of the proceeds. Which of the follow is
true?
Select one:
a. Assurance Life is the promisor, Pico is the promisee and
Amber is the third-party donee beneficiary.
b. Pico is the delegor, Assurance Life is the delegee, and Amber
is the obligee
c. Pico is the promisor, Assurance Life is the promisee...
You are the beneficiary of a life insurance policy. The insurance company offers two options for...
You are the beneficiary of a life insurance policy. The
insurance company offers two options for receiving the proceeds: a
lump sum of $50,000 today or payments of $550 a month for ten
years. If you can earn 6%, compounded monthly, which option should
you take and why?
a. Accept the lump sum because the payments are only worth
$49,540.40 today.
b. Accept the monthly payments because they are worth $51,523.74
today.
c. Accept the payments because they are worth...
An insurance company is offering a new policy to its customers.Typically the policy is bought...
An insurance company is offering a new policy to its customers.
Typically the policy is bought by a parent or grandparent for a
child at the child’s birth. For this policy, the purchaser, say,
the parent, makes the following six payments to the insurance
company: First birthday $ 800 Second birthday $ 800 Third birthday
$ 900 Fourth birthday $ 850 Fifth birthday $ 1,000 Sixth birthday $
950 After the child’s sixth birthday, no more payments are made.
When...
An insurance company is offering a new policy to its customers.Typically the policy is bought...
An insurance company is offering a new policy to its customers. Typically the policy is bought by a parent or a grandparent for a child at the child's birth. The details of the policy are as follows: The purchaser(say, the parent) makes the following six payments to the insurance company:
First birthday: $400
Second birthday: $500
Third birthday: $600
Fourth birthday: $700
Fifth birthday: $800
Sixth birthday: $900
After the child's sixth birthday, no more payments are made. When the...
An insurance company is offering a new policy to its customers. Typically, the policy is bought...
An insurance company is offering a new policy to its customers.
Typically, the policy is bought by a parent or grandparent for a
child at the child’s birth. The details of the policy are as
follows: The purchaser (say, the parent) makes the following six
payments to the insurance company:
First birthday:
$
870
Second birthday:
$
870
Third birthday:
$
970
Fourth birthday:
$
970
Fifth birthday:
$
1,070
Sixth birthday:
$
1,070 ...
An insurance company is offering a new policy to its customers. Typically, the policy is bought...
An insurance company is offering a new policy to its customers.
Typically, the policy is bought by a parent or grandparent for a
child at the child’s birth. The details of the policy are as
follows: The purchaser (say, the parent) makes the following six
payments to the insurance company: First birthday: $ 760 Second
birthday: $ 760 Third birthday: $ 860 Fourth birthday: $ 860 Fifth
birthday: $ 960 Sixth birthday: $ 960 After the child’s sixth
birthday, no...
An insurance company is offering a new policy to its customers. Typically the policy is bought...
An insurance company is offering a new policy to its customers.
Typically the policy is bought by a parent or grandparent for a
child at the child’s birth. The details of the policy are as
follows: The purchaser (say, the parent) makes the following six
payments to the insurance company: First birthday $ 880 Second
birthday 880 Third birthday 980 Fourth birthday 850 Fifth birthday
1,080 Sixth birthday 950 After the child’s sixth birthday, no more
payments are made. When...
An insurance company is offering a new policy to its customers. Typically the policy is bought...
An insurance company is offering a new policy to its customers.
Typically the policy is bought by a parent or grandparent for a
child at the child’s birth. For this policy, the purchaser, say,
the parent, makes the following six payments to the insurance
company:
First birthday $ 820
Second birthday $ 820
Third birthday $ 920
Fourth birthday $ 850
Fifth birthday $ 1,020
Sixth birthday $ 950
After the child’s sixth birthday, no more payments are made.
When...
An insurance company is offering a new policy to its customers. Typically, the policy is bought...
An insurance company
is offering a new policy to its customers. Typically, the policy is
bought by a parent or grandparent for a child at the child’s birth.
The details of the policy are as follows: The purchaser (say, the
parent) makes the following six payments to the insurance
company:
First birthday:
$
880
Second birthday:
$
880
Third birthday:
$
980
Fourth birthday:
$
980
Fifth birthday:
$
1,080
Sixth birthday:
$
1,080
...
An insurance company is offering a new policy to its customers. Typically, the policy is bought...
An insurance company is offering a new policy to its customers.
Typically, the policy is bought by a parent or grandparent for a
child at the child’s birth. The details of the policy are as
follows: The purchaser (say, the parent) makes the following six
payments to the insurance company: First birthday: $750 Second
birthday: 750 Third birthday: 850 Fourth birthday: 850 Fifth
birthday: 950 Sixth birthday: 950 After the child’s sixth birthday,
no more payments are made. When the...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- JAVA If a user inputs a specific number of rows, columns and sections for a rectangle...
- A stock costs $80 and pays a $4 dividend each year for three years. a) If...
- A solid cylinder, mass of 15 kg, is on a hill that is inclined at a...
- Discuss the difference between a)FAT, FAT32, NTFS, CDFS, etc., b)What make them diferent and why they...
- 2. Given the Instruction sets for Machine-1, Machine-2 and Machine-3, write programs to calculate: P= ((B×C)...
- Problem III. Suppose that, in a market of a certain good, there are firms that are...
- discusses the difference between public relations and advertising. Cite an organization or individual and give one...
ADVERTISEMENT