50.1K

Verified Solution

Link Copied!

JoJo Klum purchases a life insurance policy from BetterLifeCo. JoJo will pay a premium of $125 every week on Friday, and in return their beneficiaries will receive a payment of $1,000,000 on the second Friday after JoJo dies. BetterLifeCo invests the premiums it receives and expects to earn interest (net of any costs) of j52 = 10.4% p.a.

1. Illustrate all the cash flows associated with this scenario as a fully labelled timeline diagram. (Include JoJos death as an event of the timeline.)

2. If JoJo lives another 25 years, determine the amount that BetterLifeCo will have accumulated from JoJos premiums, at the time of JoJos death. ANSWER IN THE FORMAT "$XXX,XXX.XX". The amount accumulated by BetterLifeCo from JoJo's premiums to two decimal places is:

3. Determine how much this will accumulate to by the time that BetterLifeCo need to make the payout.

4. Thus, explain whether under this scenario insuring JoJo would have been a profitable exercise for BetterLifeCo.

5. Determine the minimum time JoJo would have needed to live in order for BetterLifeCo to break even on the policy. [NB this question is a little more difficult and intended to provide a bit of stretch for stronger students because you need to take into account the two week delay to payout after JoJos death.]

Answer & Explanation Solved by verified expert

See Answer