You have the opportunity to purchase an insurance policy for your newborn son. You must make the payments shown in the table. After his fifth birthday no more payments are required
If your son reaches the age of 60, then the insurance company will pay him $90,000. Alternatively, you could invest the money in a savings account. Your banker promises to pay you interest at the rate of 8% for the first 5 years (from now until your son's fifth birthday), but only promises 4% every year after that. Should you buy the policy or invest in the savings account?
First birthday $600
Second birthday $650
Third birthday $700
Fourth birthday $750
Fifth birthday $800
A) Yes, buy the policy.
B) No, do not buy the policy.
C) The policy and the savings account have the same future value.
A
You might also like to view...
Which of the following is a feature of tenancy by the entirety?
A) One owner is not permitted to sell his or her interest in the property without the consent of the other owner. B) Upon divorce, tenancy by the entirety automatically becomes joint tenancy. C) Upon the death of an owner, his or her property is divided among the other owners. D) All the owners' interest in the property can be attached by one of the owners' creditors.
Given a discount rate of 0%, which of the following has the greatest present value? ONE, a series of 10 equal annual end-of-the cash flows of $100 each, TWO, just like ONE except the first 5 cash flows are only $50 but the last 5 cash flows are $150
, or THREE, just like ONE except the 10 $100 cash flows are at the beginning of the period. A) ONE B) TWO C) THREE D) The choices all have equal present values.