Banner Ad 1

Collapse

Announcement

Collapse
No announcement yet.

Some Help With Investments for my Financial Math Exam

Collapse
This topic is closed.
X
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Some Help With Investments for my Financial Math Exam

    Hey.. i was wondering... this has been bugging me forever now... so i was wondering if somebody here could help me...

    I have a Financial Math Exam coming up.. and I just want to understand whats going on in LIFE ANNUNITIES.

    A) Find the net single premium for a 5-year temporary life annuity due of $10 000/year for a male aged 27, given j1 = 4% Answer: $46 147.17

    ---How do you interpret this? Does this mean that the man pays the insurance company $46 147.17 (in one sum?) and then receives 10 000/year for 5 years? Can sombody help me interpret it?


    B) At age 95, Mr Jones takes out a life insurance policy on which he agrees to pay premimuns of $70 at the beginning of each year for life. Find the discounted value of these premium payments, if J1 = 6% Answer = 156.00

    ---How do you interpret this? The man pays $70 a year and when he dies, his wife/children/whatever, get 156.00?

    I know how to calculate this stuff.. i just have no idea what my calculations mean?

    Can somebody please help!

    Thanks

  • #2
    A. You pay 46000 at time 0 and get 10000/yr at the beginning of each year for 5 years unless you die earlier. If you do die earlier, you will get (the number of complete years lived + 1) payments.

    B. You just want to find the PV of the premium payments. If premiums are calculated using the equivalence principle, this will be equal to the death benefit.
    Whether you are the lion or the gazelle, when the sun comes up, you better be running.

    Comment


    • #3
      ohhh okay..

      for A)
      A) why would anybody take this. if you pay 46000 and happen to live the 5 years... you only make 4000. and if you die before that, your family/children/whoever looses some money...

      How about this one.. it involves LIFE INSURANCE.

      1) Find the net single premium for a five-year term insurance policy for $25 000 issued to a female aged 27, assuming j1 = 4% Answer: 144.60

      ---So what does this one mean? She pay $144.60 at time t=0 and if she dies befor time t=5 then her family/children/whoever gets $25 000?

      And back to LIFE ANNUITIES

      2) At age 65, Mr Brown receives 100 000 lump sum from his employer to be used for his retirement. He buys an Tempoary Life Annuity for 5 years with J1 = 9% with 27 833.36 payments. He dies just before his 68th birthday, How much does his estate receive? Answer: 0

      --- hmmm.. im now confused with my first question..A) (from above) So he dies and his family gets $0.00? shouldnet they get 3 X 27 833.36 ?
      Last edited by rad; December 9 2005, 10:19 PM.

      Comment


      • #4
        1. That looks about right.
        2. An annuity pays when you live. The estate gets nothing at the time of death although it has already received 3 payments.
        Whether you are the lion or the gazelle, when the sun comes up, you better be running.

        Comment


        • #5
          okay! That helps a lot!
          Thanks so much for the help!

          Comment

          Working...
          X