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5) Standard Insurance is developing a long-life insurance policy for people who outlive their retirement nest egg. The policy will pay out $250,000 on your eighty-fifth birthday. You must buy the policy on your sixty-fifth birthday. The insurance company can earn 7% on the purchase price of your policy. What is the minimum purchase price the insurance company should charge for this policy?

Respuesta :

Answer:

Explanation:

In this question, we use the present value (PV) formula.

The NPER represents the time period

Given that,  

Present value = ?

Future value = $250,000

Rate of interest = 7%

NPER = 85 - 65 = 20 years

The formula is shown below:

= PV(Rate;NPER;PMT;FV;type)

=PV(0.07;20;;-250000)

The Future value come in negative

So, after solving this, the answer would be Rs.64,604.75

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