This topic contains a solution. Click here to go to the answer
« previous next »

Author Question: Life insurance policyholders typically receive dividends from A) mutual insurance companies. ... (Read 49 times)

debasdf

  • Hero Member
  • *****
  • Posts: 570
on: Jul 11, 2018
Life insurance policyholders typically receive dividends from
 
  A)
 
  mutual insurance companies.
  B)
 
  stock insurance companies.
  C)
 
  both mutual and stock insurance companies.
  D)
 
  neither mutual nor stock insurance companies.

Question 2

Derek owns a perpetuity contract that promises to pay him 1,000 per year in end-of the-year cash flows with the first cash flow beginning one year from today.
 
  Derek perceives some risk with the promised cash flows and has discounted them at an annual rate of 10.00 to determine the present value of the contract. Derek has offered to sell a portion of the contract to his brother Cam. The agreement is that Derek will keep the first 25 cash flows and that Cam will keep the remaining cash flows beginning with the first cash flow 26 years from today. What is the present value of the original contract? What is the present value of the first 25 cash flows? What is the present value of the cash flows received in year 26 and beyond? If Derek makes the deal as described and charges Cam 1,000 for the year 26 and beyond cash flows, which brother is getting a better deal? Please provide dollar values for each of these questions.


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

Joc

  • Sr. Member
  • ****
  • Posts: 317
Reply #1 on: Jul 11, 2018
Answer to Question 1

A

Answer to Question 2

PV of contract = 10,000, PV of first 25 cash flows = 9,077.04, PV of remaining cash flows = 922.96. Derek gets the better deal, he is selling cash flows with a PV of 922.96 for 1,000.


debasdf

  • Member
  • Posts: 570
Reply 2 on: Jul 11, 2018
Wow, this really help

ebonylittles

  • Member
  • Posts: 318
Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

« previous next »
 

Did you know?

The Romans did not use numerals to indicate fractions but instead used words to indicate parts of a whole.

Did you know?

The most common treatment options for addiction include psychotherapy, support groups, and individual counseling.

Did you know?

During the twentieth century, a variant of the metric system was used in Russia and France in which the base unit of mass was the tonne. Instead of kilograms, this system used millitonnes (mt).

Did you know?

More than 2,500 barbiturates have been synthesized. At the height of their popularity, about 50 were marketed for human use.

Did you know?

The average person is easily confused by the terms pharmaceutics and pharmacology, thinking they are one and the same. Whereas pharmaceutics is the science of preparing and dispensing drugs (otherwise known as the science of pharmacy), pharmacology is the study of medications.

The Many Faces of Life The Many Faces of Life
Hip Typically occurs as a result of a fall; with osteoporosis, hip fractures can occur as a result o Hip Typically occurs as a result of a fall; with osteoporosis, hip fractures can occur as a result o
(A) Bronchopneumonia with localized pattern. (B) Lobar pneumonia with a diffuse pattern within the l (A) Bronchopneumonia with localized pattern. (B) Lobar pneumonia with a diffuse pattern within the l
Fern life cycle Fern life cycle
Jan de Heem, Still Life with Lobster. Jan de Heem, Still Life with Lobster.
Children with attention deficit disorder with hyperactivity (ADHD) diagnoses typically need a quiet, ... Children with attention deficit disorder with hyperactivity (ADHD) diagnoses typically need a quiet, ...
Video: Digestive System Animation

For a complete list of videos, visit our video library