An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child’s birth. The purchaser (say, the parent) makes the following six payments to the insurance company:    First birthday: $ 820 Second birthday: $ 820 Third birthday: $ 920 Fourth birthday: $ 850 Fifth birthday: $ 1,020 Sixth birthday: $ 950   After the child’s sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $320,000. The relevant interest rate is 10 percent for the first six years and 7 percent for all subsequent years. Find the future value of the payments at the child's 65th birthday.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child’s birth. The purchaser (say, the parent) makes the following six payments to the insurance company:

  

First birthday: $ 820
Second birthday: $ 820
Third birthday: $ 920
Fourth birthday: $ 850
Fifth birthday: $ 1,020
Sixth birthday: $ 950

 

After the child’s sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $320,000. The relevant interest rate is 10 percent for the first six years and 7 percent for all subsequent years. Find the future value of the payments at the child's 65th birthday.

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