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son4ous [18]
3 years ago
6

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: $ 940 Second birthday: $ 940 Third birthday: $ 1,040 Fourth birthday: $ 1,040 Fifth birthday: $ 1,140 Sixth birthday: $ 1,140 After the child’s sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $130,000. If the relevant interest rate is 9 percent for the first six years and 5 percent for all subsequent years, what is the value of the policy at the child's 65th birthday
Business
1 answer:
Doss [256]3 years ago
3 0

Answer:

The value of the policy assuming the proposed rates is 142,769.63

Explanation:

Time line:

<--/--/--/--/--/--/----------------------------------------------------------//-->

We have 6 payment and then, a lump sum capitalize until age 65

First we calculatethe value up to the end of the six year:

Principal \: (1+ r)^{time} = Amount

First year:

940 \: (1+ 0.09)^{6} = Amount

Amount 1,576.47

Second year:

940 \: (1+ 0.09)^{5} = Amount

Amount 1,446.31

Third Year:

1040 \: (1+ 0.09)^{4} = Amount

Amount 1,468.04

Fourth year:

1040 \: (1+ 0.09)^{3} = Amount

Amount 1,346.83

Fifth year:

1140 \: (1+ 0.09)^{2} = Amount

Amount 1,354.43

Six year:

1140 \: (1+ 0.09)^{1} = Amount

Amount 1,242.60

Sum at the end of the six year: 7,080.25‬

<u>Then this capitalize up to 65 birthday:</u>

from the seventh birthday up to the 65th birthday

65 - 7 = 58 years

Principal \: (1+ r)^{time} = Amount

Principal 8,426.68

time 58.00

rate 0.05000

8426.68 \: (1+ 0.05)^{58} = Amount

Amount 142,769.63

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Alpha Industries is considering a project with an initial cost of $9.7 million. The project will produce cash inflows of $1.67 m
vovikov84 [41]

Answer:

$660,000

Explanation:

WACC = [wD * kD * (1 - t)] + [wE * kE]

WACC = [(0.77 / 1.77)*6.12%* (1 - 0.40)] + [(1 / 1.77)*11.61%]

WACC = 1.60% + 6.56%

WACC = 8.16%

Present value of annuity = Annuity*[1-(1+interest rate)^-time period]/rate

Present value of annuity = $1.67*[1-(1.08156745763)^-9]/0.0816

Present value of annuity = $1.67*6.206374532

Present value of annuity = $10.36 million

NPV = Present value of inflows - Present value of outflows

NPV = $10.36 million - $9.7 million

NPV = $660,000

5 0
3 years ago
Insurance policies often contain a covenant of good faith and fair dealing. Even if the clause is not in the policy, often court
Oxana [17]

Answer:

The <em>covenant of good faith and fair dealing</em> simply requires all the parties to a contract to deal in an even-handed manner such that one party's action does not frustrate the other or prevent the other from getting the benefits of that contract.

In insurance, this covenant is sometimes captured under the heading <em>Uberrima fides</em>. This is a Latin phrase meaning <em>"Utmost Good Faith".</em>

In insurance, this covenant is legally binding on all parties to ensure they each reveal every information that is material to the acceptance or rejection of the risk (on the part of the Insurer) whilst on the part of the Insured the insurer is required to be explicit regarding the terms of the policy as well as the calculations by which the premium is arrived at.

For example, if an Insurance company is looking at covering someone under it's Life Insurance Policy, the person taking out the contract must disclose whether or not the Insured has any latent health issues which might shorten their lifespan. If there is such a condition, the Insurance company may still take on the risk albeit at a relatively higher rate than a client without such medical conditions.

 

An Insurance Company may breach this covenant if they delay or refuse to reasonable settle claims due to the Insured. It may also arise if the Insurance company by some technical manipulation intentionally under settles an Insurance claim.

If for instance, a Comprehensive Insurance Policy files a valid claim, the Insurer may be liable for negligence and or intentional wrongdoing.

Cheers!

6 0
3 years ago
Use the information below to answer questions 4-7. Drake Company's income statement for the most recent year appears below:
Colt1911 [192]

Answer:

(A) $731,250

Explanation:

The formula to compute the break-even point in sales dollars is shown below:

= (Fixed expenses or Fixed cost) ÷ (Contribution ratio)

where,

Contribution ratio = Contribution margin ÷ sales

                             = $208,000 ÷ $650,000

                             = 0.32 or 32%

And, the fixed expense is $234,000

Now put the values to the above formula

So, the value would equal to

= $234,000 ÷ 32%

= $731,250

6 0
3 years ago
The time required for an automotive center to complete an oil change service on an automobile approximately follows a normal​ di
sveticcg [70]
Let X be the time or period needed for an automobile center to finish an oil change.

X ∼ N (17, 2.5) 

a) 

P(X ≥ 20) = P((X - 17)/5 ≥ (20- 17)/2.5) = P(Z ≥ 1.2) = .1151 *100 = 11.51% is the answer

b) 
P(X ≥ x) = 0.07 

P (X - 17)/2.5 ≥ (x - 17)/2.5) = 0.07

P (Z ≥ z) = 0.07
look at the z table, 0.07 lies between 1.47 and 1.48, add and then divide you'll get:z = 1.475

1.475 = (x - 17)/2.5 

x = 20.6875 ≈ 21 minutes
3 0
3 years ago
Barry and his friends tended to favor a tuition increase that would be used to improve technological facilities. After discussin
swat32

Answer:

group polarization

Explanation:

Group polarization: In social psychology, the term "group polarization" is described as the propensity for a specific group to make a few decisions that are considered as more extreme as compared to the initial inclination of the group's members. However, group polarization occurs either in the direction of conservativeness or riskiness.

In the question above, the given statement represents group polarization.

8 0
3 years ago
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