The premiums on an insurance policy are $60 every 3 months, payable at the beginning of each three-month period. If the policy holder wishes to pay 1 year’s premiums in advance, how much should be paid provided that the interest rate is 4.3% compounded quarterly?
What formula would I use for this? The Present value annutiy formula is what i believe it should be...
The premiums on an insurance policy are $60 every 3 months, payable at the beginning of each three-month period. If the policy holder wishes to pay 1 year’s premiums in advance, how much should be paid provided that the interest rate is 4.3% compounded quarterly?
What formula would I use for this? The Present value annutiy formula is what i believe it should be...
The question is worded poorly, normally you'd expect premium payments to stay stable so it would be $240. However, if you mean the premiums go up 4.3% a quarter then use the compound interest formula:
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The following users thank e^(i*pi) for this useful post:
Look at it this way to "unconfuse(!)" yourself:
assume that the insured left $180 at beginning (after paying 1st $60)
in an account that pays 4.3% compounded quarterly?
He then withdraws 60 every 3 months to pay next 3 quarterly premiums. Calculate the interest he will receive in that account.
That interest is the amount by which the $240 would be reduced.
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