Question

Problem 6-5 (Part Level Submission) Julia Baker died, leaving to her husband John an insurance policy contract that provides that the beneficiary (John) can choose any one of the following four options. Money is worth 2.50% per quarter, compounded quarterly. Compute Present value if: Click here to view factor tables (a) x Your answer is incorrect. Try again. (a) $55,260 immediate cash. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to o decimal places, e.g. 458,581.) Present value Click if you would like to Show Work for this question: Open Show Work

Answer 1

(a) Present Value = $55,260
(b)
Payment per quarter	$4,040
No of payments over 5 Years (5 year * 4 quarter per year)	20
Rate of Return per Quarter	2.50%
PV annuity factor at 2.5% for 20 periods	15.58916
Pv = $4,040 * 15.58916	$62,980.21
(c )
Payment per quarter	$1,916
No of payments over 10 years (10 year * 4 quarter per year)	40
Rate of Return per Quarter	2.50%
PV annuity factor at 2.5% for 40 periods	25.73034
Pv = $1,916 * 25.73034	$49,299.33
Present Value of Quarterly Payments	$49,299
Present Value of Immediate Payment amount	$19,160
TOTAL PV	$68,459
(d)
Payment per quarter	$4,040
No of payments over 3 years (3 year * 4 quarter per year)	12
Rate of Return per Quarter	2.50%
PV annuity factor at 2.5% for 40 periods	10.25776
Pv = $4,040 * 10.25776	$41,441
Total Payments =25+12	37
PV annuity factor at 2.5% for 37 periods	23.95732
PV annuity factor at 2.5% for 12 periods	10.25776
PV annuity factor at 2.5% from 13th period to 37th period	13.69956
TOTAL PV ($41,441 + $20,412)	$61,854
Payment per quarter	$1,490
No of payments over 3 years (3 year * 4 quarter per year)	25
Rate of Return per Quarter	2.50%
PV annuity factor at 2.5% from 13th period to 37th period	13.69956
Pv = $1,490 * 13.69956	$20,412
John Should choose option C