Question

problem 6-5 Julia Baker died, leaving to her husband Henry an insurance policy contract that provides that the beneficiary (Henry) 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 Correct answer. Your answer is correct. (a) $57,860 immediate cash. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Present value $ Entry field with correct answer Show Solution Link to Text Link to Text Incorrect answer. Your answer is incorrect. Try again. (b) $4,180 every 3 months payable at the end of each quarter for 5 years. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Present value $ Entry field with incorrect answer Correct answer. Your answer is correct. (c) $19,190 immediate cash and $1,919 every 3 months for 10 years, payable at the beginning of each 3-month period. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Present value $ Entry field with correct answer Show Solution Link to Text Link to Text Incorrect answer. Your answer is incorrect. Try again. (d) $4,180 every 3 months for 3 years and $1,440 each quarter for the following 25 quarters, all payments payable at the end of each quarter. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Present value $ Entry field with incorrect answer Correct answer. Your answer is correct. Which option would you recommend that Henry exercise? Entry field with correct answer

Answer 1

Answer will be Option 4

Please find below table useful to compute desired results: -

F ДА 1 Money worth per quarter 2 3 Option 1 Immediate Cash 4 Option 2 $4.180 every 3 months payable at the end of each quarter for 5 years 5 Option 3 $19.190 immediate cash 6 $1,919 every 3 months for 10 years 7 payable at the beginning of each 3-month period 8 Option 4 S4,180 every 3 months for 3 years $1,440 each quarter for the following 25 quarters all payments payable at the end of each quarter C D =2.5/100 Quarter no. Amount PV factor Present Value 57860 =1/(1+F1) C3 =D3*E3 =4*5 4180 =((1+F1) C4-1)/(F1*(1+F1) C4) =D4*E4 19190 =1/(1+F1) C5 =D5%E5 =4*10 1919 =((1-(1+F1)^-(C6-1)/(F1)+1 =D6*E6 =F5+F6 4180 =((1+F1) C8-1)/(F1*(1+F1) C8) =D8 E8 1440 =((1+F1) C9-1)/(F1*(1+F1) C9) I=D9*E9 =F8+F9

End results would be as follows: -

А B 1 Money worth per quarter 2 3 Option 1 Immediate Cash 4 Option 2 $4,180 every 3 months payable at the end of each quarter for 5 years 5 Option 3 $19.190 immediate cash $1.919 every 3 months for 10 years payable at the beginning of each 3-month period 8 Option 4 $4,180 every 3 months for 3 years 9 $1,440 each quarter for the following 25 quarters 10 all payments payable at the end of each quarter Ε 2.5 Quarter no. Amount PV factor Present Value - 57.860 1.00000 57,860 20 4.180 15.58916 65,163 - 19.190 1.00000 19,190 40 1.919 25.73034 49.377 68,567 12 4.180 10.25776 42.877 25 1,440 18.42438 26,531 69,409 6