Saving Plan Options An insurance company offers a saving plan that has two options for the insured to withdraw money after maturity. Option A consists of a guaranteed payment of £1500 at the end of each month for 15 years. Alternatively, under option B, the insured receives a lump-sum payment equal to the present value of the payments described under option A. (a) Find the sum of the payments under option A. (b) Find the lump-sum payment under option B if it is determined by using an interest rate of 2.25% compounded monthly. Round the answer to the nearest pound. C. Which option is better? Why?

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter10: Introduction To Simulation Modeling
Section: Chapter Questions
Problem 46P
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Saving Plan Options An insurance company offers a
saving plan that has two options for the insured to withdraw
money after maturity. Option A consists of a guaranteed payment
of £1500 at the end of each month for 15 years. Alternatively,
under option B, the insured receives a lump-sum payment equal to
the present value of the payments described under option A.
(a) Find the sum of the payments under option A.
(b) Find the lump-sum payment under option B if it is determined
by using an interest rate of 2.25% compounded monthly. Round
the answer to the nearest pound.
C. Which option is better? Why?
Transcribed Image Text:Saving Plan Options An insurance company offers a saving plan that has two options for the insured to withdraw money after maturity. Option A consists of a guaranteed payment of £1500 at the end of each month for 15 years. Alternatively, under option B, the insured receives a lump-sum payment equal to the present value of the payments described under option A. (a) Find the sum of the payments under option A. (b) Find the lump-sum payment under option B if it is determined by using an interest rate of 2.25% compounded monthly. Round the answer to the nearest pound. C. Which option is better? Why?
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