P6-5 Julia Baker
died, leaving to her husband Brent an insurance policy contract that provides
that the beneficiary (Brent) can choose any one of the following four options.
(a) $55,000
immediate cash.
(b) $4,000 every
3 months payable at the end of each quarter for 5 years.
(c) $18,000
immediate cash and $1,800 every 3 months for 10 years, payable at the beginning
of each 3-month period.
(d) $4,000
every 3 months for 3 years and $1,500 each quarter for the following 25
quarters, all payments payable at the end of each quarter.
Instructions
If money is
worth 2½% per quarter, compounded quarterly, which option would you recommend
that Brent exercise?
TUTORIAL PREVIEW
(b) Time diagram:
i = 21/2%
per quarter
PV – OA = R =
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