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navik [9.2K]
3 years ago
11

You purchase a life insurance policy which involves making 5 annual premium payments (the first payment starting today). The ori

ginal 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
Business
1 answer:
anygoal [31]3 years ago
7 0

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

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Explanation:

The file attached shows the full question

The picture attached shows the solution to the problem

Download docx
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3 years ago
A rapidly growing small firm does not have access to sufficient external financing to accommodate its planned growth. Discuss wh
monitta

Answer:

Alternatives :

1. Bank Overdraft facility

2.Suppliers Credit

Cost determination :

1. Bank Overdraft facility = Interest rate charged on the facility by the bank

2.Suppliers Credit = Opportunity cost of losing the early settlement discount.

Explanation:

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The cost of bank overdraft is evaluated based on the interest rate charged by the bank whilst the cost of the suppliers credit is determined by considering the opportunity cost of losing the cash discount available.

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A puttable bond, also known as a put bond or retractable bond, is a type of bond that gives the bondholder (investor) the right but not the responsibility to demand that the issuer repay the bond before its maturity date. This bond has a put option built into it, to put it another way.

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