What is the value of the policy

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Question - An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child's birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company:

First birthday: $800

Second birthday: $800

Third birthday: $800

Fourth birthday: $900

Fifth birthday: $1,000

Sixth birthday: $1,000

After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $150,000.

Required - If the relevant interest rate is 10 percent for the first six years and 5.75% percent for all subsequent years, what is the value of the policy at the child's 65th birthday?

Reference no: EM132559734

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