See chart on page 97. Explain to me why the policy cash values go up faster for policies with a shorter premium paying period. represented by the ordinary life insurance policy, for which the premiums are pay-policies, whereas a LP85 policy or beyond is, for practical purposes, an ordinarylife policy. Other things being the same, as the number of premium paymentsCHAPTER 4: PERSONAL LIFE INSURANCE PRODUCTS: IIincreases, the annual premium and, consequently, the rate of growth of cash val-become much less popular in recent years. Figure 4-1 shows a stylized illustrationof cash values for various WL insurance policies for a male aged 40.97esented by the ordinary life insurance policy, for which the premiums are pay-reprentil the maturity of the contract. Limited-payment contracts vary betweenabie extremes. Thus, five and 10-pay life policies are close to single-premiumthcies, whereas a LP85 policy or beyond is, for practical purposes, an ordinaryife policy. Other things being the same, as the number ofme Peses, the annual premium and, consequently, the rate of growth of cash val-premium paymentsueshecome correspondingly smaller. Limited payment whole life policies havedome much less popular in recent years. Figure 4-1 shows a stylized illustrationDecoch values for various WL insurance policies for a male aged 40.Stylized Illustration of Cash Values for Selected Whole Life to Age 100Policies, Male, Age 40Figure$1,000800600Single Premium, 10-Pay, 20-Pay400Ordinary LifeSingle Premium20020-Pay Life|405060708090100Attained AgeWith whole life policies, the size of the cash value varies inversely with the length of the premiumpaying period. Thus, the ordinary life plan with payments for life has the lowest cash values, andthe single-premium plan has the highest. After premium payments cease under the 10 paymentand 20 payment WL plans, the cash values in each instance equal those under the single premiumplan for policies using the same underlying pricing assumptions. This must be the case, as afterthe limited-payment period expires, the value to the company of future premiums is zero and allfuture mortality costs must be covered from existing funds and interest credited thereon.withathఎరిnt.in10-Pay Life

Answered: why the policy cash values go up faster…

Business

Finance

why the policy cash values go up faster for policies with a shorter premium paying period.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

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. Consider the following insurance company options. Company 1: pays 4.2% compounded monthly on the cash value of their policies Company 2: pays 4.21% compounded semiannually on the cash value of their policies What is the APY offered by each company? (Round your answers to the nearest hundredth.) Company 1 % Company 2 %
1. Which of the following is considered as a Cash Equivalent? -Postal money Order -Check -Treasury Bill Issued 1 year ago Acquired and Maturing 3 months from now -Treasury Bill Issued 5 Months Ago , Acquired and Maturing 4 months from now 2. Which of the following is Considered Cash? -Pension Fund -sinking Fund "Bond Attached is 2 year maturity" -Fund to buy PPE for Next Year -Petty Cash Fund 3. Which of the following would result in a Dr to AR? - -Sale of goods under " special order" "Special order is yet to be completed" -Sale with a right of repurchase -Sale of goods under "Consignment" -Sale of goods classified as Trade 4. When inventory is held on consignment it should be? - -Reported as cost of goods sold -Recorded as inventory -Derecognized -Reported as purchase 5. the Following are classified under PPE Except? - -Machinery -All are PPE -Building -Land 6. Which of the following is classified under PAS 16 -…
Subject :- Accounting You have discussed your retirement plans with your significant other and plan to move to a state with a lower cost of living upon retirement. You plan on living off $85,000 annually. You understand that your retirement account will likely yield a 5% return. Using the 4% Rule, how much money do you need in your retirement account upon retirement?(round to the nearest dollar){DO NOT INCLUDE COMMAS OR $}
Give typing answer with explanation and conclusion An insurance company offers a policy by which a person can receive the amount of $4,000,000.00 in 30 years. What present value (purchasing power), will that amount have "today" if we consider 6% inflation per year on average?
The annual premium for a $5,000 insurance policy against the theft of a painting is $250. If the (empirical) probability that the painting will be stolen during the year is 0.01, what is your expected return from the insurance company if you take out this insurance? Let X be the random variable for the amount of money received from the insurance company in the given year.
3. Explain different types of money market instruments. In each of the below cases, which money market instruments would you recommend and why? a. A mutual fund manager has INR 450 million of cash, which he needs to park for a period of less than 180 days, where he will move this to equity b. An oil refining company wishes to borrow INR 1500 million for a period of 90 days to fund its settlement of invoices
Your accountant has conviced you that you should invest your bonus from this year into your retirement account-instead of buying a new sport car- because of the high expected return on the investment. Determine which of these fundamental factors is affecting the cost of money in the senario described. a. inflation b. Time prefernces for consumption c. Risk
Scenario 1: Individual Retirement Accounts (IRAs) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to and the level of investment spending to .
Question and my answer is below. Can you help me determine what I have done incorrectly? I believe it may be with the PMT line. I selected 0 because it doesn't say that her payments will be reinvested. investment you made in a friend’s business. She will pay you $22,809 at the end of this year, $45,618 at the end of next year, and $68,427 at the end of the year after that (three years from today). The interest rate is 11.5% per year. What is the PV of your windfall? Financial Calculator: N = 1 year I/Y = 11.5% *Note: Only place 11.5 press I/Y; no division or equal sign like mortgage FV = 22,809 PMT = 0 *Note: Payment here is any additional deposits. It says she pays you, not reinvest) CPT PV = 20,456.50 b. What is the FV of your windfall in three years? Financial Calculator: N = 3 year I/Y = 11.5% *Note: Only place 11.5 press I/Y; no division or equal sign like mortgage PV = 68,427 PMT = 0 *Note: Payment here is any additional deposits. It says she pays you, not reinvest)…
II. Instead of buying insurance for retirement, you decided to set aside some savings in the bank. You believe that saving money in the bank is safer and more convenient than buying insurance. A)IfyouinvestOMR15,000nowat10%compoundedannually,howmuchwillbeinyouraccount after 20 years? B)IfyouinvestOMR15,000nowat10%compoundedquarterly,howmuchwillbeinyouraccount after 20 years? C)Discussthefactorswhatwillincreasethefuturevalueoftheamount.
Please solve this problem using excel(showing formulas) and also graph using excel showing steps. The table shows cash flows for 2 alternatives. Money can be borrowed issuing bonds at 7% per year. Which alternative is better based on Rate of Return analysis? Year A B 0 -$10M -$37M 1-10 1M 4M 11-indefinite 1.5M 2.5M Solution sent me typing only .
i need answer ASAP! my question is about corporate finance. An annuity and an annuity due with the same number of payments have the same future value if r = 10%. Which one has the higher payment? a-the annuity due has the higher payment b-the annuity has the higher payment c-annuity and annuity due cannot have the same future value d-there is no way to tell which has the higher payment e-they both must have the same payment since the future values are the same