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: ……………………..$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 child reaches age 65, he or she receives $250,000. If the relevant interest rate is 11 percent for the first six years and 7 percent for all subsequent years, is the policy worth buying?
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