Question

You are thinking about buying an insurance product with the following specifications: the offered insurance product requires you to make payments semi-annually of $50 and do so for the next 20 years (first payment six months from today.). if your required rate of return is 6% per year (i.e. effective), what amount of money should the insurance product offer to pay you at the end of 20 years.

Answer 1

Answer to Question #91327, Economics / Other

We find the future value of the ordinary annuity

\begin{array}{l} F V _ {O A} = C \left[ \frac {\left\{\left(1 + \frac {r}{m}\right) ^ {m t} - 1 \right\}}{\frac {r}{m}} \right] \\ = 5 0 \left[ \frac {\left\{\left(1 + \frac {0 . 0 6}{2}\right) ^ {2 + 2 0} - 1 \right\}}{\frac {0 . 0 6}{2}} \right] \\ = \ $ 3 7 7 0. 0 6 \end{array}

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