Question

Julia Baker died leaving to her husband John an insurance policy contract that provides that the beneficiary quarter, compounded quarterly. Compute Present value if: o n can choose anyone of the follo in our option one, swo 250 per (a) $59,630 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 s (b) $4,110 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 O decimal places, e.g. 458,581.) Present value (c) $19,170 immediate cash and $1,917 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 O decimal places, e.g. 458,581.) Present value (d) $4,110 every 3 months for 3 years and $1,530 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 O decimal places, e.g. 458,581.) Present value

Answer 1

Quarterly Interest Rate = 2.50%

Answer a.

Present Value = $59,630

Answer b.

Quarterly payment = $4,110
Number of payments = 20

Present Value = $4,110 * PVA of $1 (2.50%, 20)
Present Value = $4,110 * 15.58916
Present Value = $64,071

Answer c.

Initial payment = $19,170
Quarterly payment = $1,917
Number of payments = 40

Present Value = $19,170 + $1,917 * PVAD of $1 (2.50%, 40)
Present Value = $19,170 + $1,917 * 25.73034
Present Value = $68,495

Answer d.

Quarterly payment for first 12 quarters = $4,110
Quarterly payment for next 25 quarters = $1,530

Present Value = $4,110 * PVA of $1 (2.50%, 12) + $1,530 * PVA of $1 (2.50%, 25) * PV of $1 (2.50%, 12)
Present Value = $4,110 * 10.25776 + $1,530 * 18.42438 * 0.74356
Present Value = $63,120