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11 March, 13:30

Standard insurance is developing a long-life insurance policy for people who outlive their retirement nest egg. the policy will pay out $250,000 on your eighty-fifth birthday. you must buy the policy on your sixty-fifth birthday. the insurance company can earn 7% on the purchase price of your policy. what is the minimum purchase price the insurance company should charge for this policy?

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  1. 11 March, 13:51
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    Solution: Policy Payout on 85 th Birthday - $250,000 Insurance Company earning rate = 7% Policy bought is on 65 th Birthday. Based on the above information, the minimum purchase price will be calculated as under Purchase Price of the Insurance = Future Payout / (1+discount rate) ^n = $250,000 / (1+7%) ^20 (Total years amount remain invested is 20 years) ...
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