Question

In: Finance

Present value. Standard Insurance is developing a​ long-life insurance policy for people who outlive their retirement...

Present value. Standard Insurance is developing a​ long-life insurance policy for people who outlive their retirement nest egg. The policy will pay out ​$240,000 on your 80th birthday. You must buy the policy on your 62nd birthday. The insurance company can earn 5.5​% 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

Present value=$240,000*Present value of discounting factor(rate%,time period)

=$240,000/1.055^18

=$240,000*0.381465904

=$91551.82(Approx).


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