Answer:
The Net cost of insurance $13,129.
Explanation:
Annual premium (15 years) $15,000 ($1,000 × 15 years)
Time value of money
$1,000 × 25.129 = $25,129 (Exhibit 1-B, 15 years, 7%)
+$10,129 ($25,129 - 15,000)
Total cost of policy $25,129 ($15,000 + 10,129)
Cash value (end of 15 years) -$12,000
Net cost of insurance $13,129 ($25,129 - 12,000)
At a 7 percent annual yield, your account would have accumulated to $25,129 in 15 years. You have paid $13,129 for 15 years of insurance protection.
Answer:
13,129
Explanation:
We will compare the end value of the policy with the future value of the premiums as moeny has a value over time of 7%
Future Value of the premiums at year 10th if they were invested elsewhere:
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = FV\\[/tex]
C 1,000.00
time 15
rate 0.07
[tex]1000 \times \frac{1-(1+0.07)^{-15} }{0.07} = FV\\[/tex]
FV $25,129.0220
Salvage value of the policy if not exercise: 12,000
We "renounce" to 25,129 dollars for not investing the cash but we receive 12,000 therefore, the net value is the difference:
25,129 - 12,000 = 13,129
It cost 13,129 to get the insurance.
