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bigexternal bigexternal
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7 years ago
You have the opportunity to purchase an insurance policy for your newborn son. You must make the payments shown in the table. After his fifth birthday no more payments are required. If your son reaches the age of 60, then the insurance company will pay him $90,000. Alternatively, you could invest the money in a savings account. Your banker promises to pay you interest at the rate of 8% for the first 5 years (from now until your son's fifth birthday), but only promises 4% every year after that. Should you buy the policy or invest in the savings account?

First birthday   $600
Second birthday   $650
Third birthday   $700
Fourth birthday   $750
Fifth birthday   $800

A) Yes, buy the policy.
B) No, do not buy the policy.
C) The policy and the savings account have the same future value.
Textbook 
Corporate Finance Online

Corporate Finance Online


Edition: 1st
Authors:
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We're using: Corporate Finance Online (Eakins, McNally)
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BlimpBlimp
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7 years ago
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Pol. Sci. Major
Minoring in Business
Columbia University Sophomore

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bigexternal Author
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#2
7 years ago
Really appreciate the effort, thank you for responding
We're using: Corporate Finance Online (Eakins, McNally)
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