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 $220,000 on your 80th birthday. You must buy the policy on your 65 th birthday. The insurance company can earn 7.5% on the purchase price of your policy. What is the minimum purchase price the insurance company should charge for this policy? What is the minimum purchase price the insurance company should charge for this policy?
Solutions
Expert Solution
Future value= $220,000
Time= 15 years
Interest rate= 7.50%
The question is solved by calculating the present value of the insurance policy using a financial calculator.
Enter the below in a financial calculator:
FV= 220,000; N= 15; I/Y= 7.50
Press CPT and PV to calculate the present value
Therefore, the minimum purchase price the insurance company would charge for the policy would be $74,352.52.
jeff jeffy answered 2 years agoRelated Solutions
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