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What amount of insurance should be taken out

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Question a) A person wants to buy a life insurance policy which would yield a large enough sum of money to provide for 25 annual payments of $60,000 to surviving members of the family. The payments would begin 1 year from the time of death. It is assumed that interest could be earned on the sum received from the policy at a rate 9 percent per year compounded annually.

i) What amount of insurance should be taken out so as to ensure the desired annuity?

ii) How much interest will be earned on the policy benefits over the 20-years?

Question b) An investment company wants to establish a sinking fund to pay off debts of $85 million which come due in 10 years. The company can earn interest at the rate of 9 percent per year compounded annually. If the first deposit is made at the end of this year, what annual deposit will be required to accumulate the $85 million?

Reference no: EM132589791

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