For life insurance policies, some of the premium pays for the cost of the insurance, and the remainder goes toward the cash value of the policy and earns interest like a savings account. Suppose that, on the cash value of their policies, one insurance company pays 4.8% compounded monthly and another pays 4.82% compounded semiannually. Use effective rates to determine which company offers the higher yield. Write your answer as a percent rounded to three decimal places.

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Tundexi Tundexi · Answer 1 · 2020-06-15T02:43:33+02:00

Answer:

The conclusion is 4.8% interest per monthly yield nire interest than 4.82 semi-annually

Explanation:

Consider that "X" cash value goes like a solving account, we consider for one year;-

1. For 4.8% compound monthly

amount+Principal (1+i/m)^nm

Where principal = x

i=4.8%

n=12

m=12

Amount= x(1+0.048/12)^12x2

=x(1+0.004)^144

=x(1.004)^144

=X(1.776865)

Amount=1.7769x

2, When they offer 4.82% semi annually, then

amount+Principal (1+i/m)^nm

Where principal = x

i=4.82%= 0.00482

n=12

m=2

Amount= x(1+0.0482/12)^12x2

=x(1+0.00482)^24

=x(1.00482)^24

=X(1.122324)

Amount=1.12232x

The conclusion is 4.8% interest per monthly yield nire interest than 4.82 semi-annually.