Question

Diane has an insurance policy with a cash value at age 65 that will provide semi-annual payments which will grow by 0.52% per half-year for 24 years, with a first payment of $95 one half-year after reaching 65. If the insurance company pays 5.2%/year compounded semi-annually on its funds, what is the cash value at age 65?

Answer 1

Present Value of Growing Annuity = P/(r - g)[1 - ((1 + g)/(1 + r))ⁿ]

Present Value at 65= 95/(0.026 - 0.0052)[1 - (1.0052/1.026)⁴⁸]

Present Value at 65 = $2,858.45