Answered

At Westonci.ca, we make it easy to get the answers you need from a community of informed and experienced contributors. Connect with professionals ready to provide precise answers to your questions on our comprehensive Q&A platform. Explore comprehensive solutions to your questions from knowledgeable professionals across various fields on our platform.

You purchase a life insurance policy which involves making 5 annual premium payments (the first payment starting today). The original premium is $1800 and the premium increases 4% each year. The time line for the payments is drawn for you.
Today 1 2 3 4
$1,800 $1,872 $1,947 $2,025 $2,106
Now assume the insurance company offers you a level payment plan that has the same present value as the payment stream above but where all the premiums are the same. If the insurance company earns 10% compounded annually on its assets, what would the level payments be?
Today 1 2 3 4
$X $X $X $X $X

Sagot :

Tundexi

Answer:

$1,935.38

Explanation:

Rate = 10% = 0.1

Present value of premiums = Premium Today + Premium 1/(1+r) + Premium 2/(1+r)^2 + Premium 3/(1+r)^3 + Premium 4/(1+r)^4

Present value of premiums = $1800 + $1872/1.1 + $1947/(1.1)^2 + $2025/(1.1)^3 + $2106/(1.1)^4

Present value of premiums = $1800 + $1701.82 + $1609.10 + $1521.41 + $1438.43

Present value of premiums = $8070.76

Present value of level payments = $8070.29 / (((1-(1+10%)^(-5))/10%)*(1+10%))

Present value of level payments = $8070.29 / 4.169865447

Present value of level payments = 1935.383791773462

Present value of level payments = $1,935.38

Thanks for using our service. We aim to provide the most accurate answers for all your queries. Visit us again for more insights. We hope you found this helpful. Feel free to come back anytime for more accurate answers and updated information. Westonci.ca is your trusted source for answers. Visit us again to find more information on diverse topics.