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12 December, 07:24

5) 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. 12 December, 10:28
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    In this question, we use the present value (PV) formula.

    The NPER represents the time period

    Given that,

    Present value = ?

    Future value = $250,000

    Rate of interest = 7%

    NPER = 85 - 65 = 20 years

    The formula is shown below:

    = PV (Rate; NPER; PMT; FV; type)

    =PV (0.07; 20;; -250000)

    The Future value come in negative

    So, after solving this, the answer would be Rs. 64,604.75
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