Question

Problem 6-5 (Part Level Submission) Julia Baker died, leaving to her husband John an insurance policy contract that provides that the beneficiary (John) can choose any one of the following four options. Money is worth 2.50% per quarter, compounded quarterly. Compute Present value if: Click here to view factor tables (a) x Your answer is incorrect. Try again. (a) $55,260 immediate cash. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to o decimal places, e.g. 458,581.) Present value Click if you would like to Show Work for this question: Open Show Work

Answer 1

note: only three options are visible in the question posted.

(a)

present value of $55260 = $55260

(b)

present value of annuity = annuity x PVAF

= $4040 x 15.58916

= $62,980

where,

interest rate = 2.5%

Number of periods = 5 x 4 = 20

PVAF(2.5%, 20) = 15.58916

(c)

present value of $19160 = $19160

present value of annuity due = annuity x PVAF

= $1916 x 25.73034

= $49,299

where,

interest rate = 2.5%

Number of periods = 10 x 4 = 40

PVAF(2.5%, 40) = 25.73034

therefore,

total present value = $$19160 + $49299

= $68459

CONCLUSION: Option (c) having largest present value $68459 is the best option.