The Mutual Assurance and Life Company is offering an insurance policy under either of the following two terms:
a. Make a series of twelve $1,100 payments at the beginning of each of the next 12 years (the first payment being made today)
b. Make a single lump-sum payment today of $8,800 and receive coverage for the next 12 years.
Which option would you prefer assuming a rate of 8 percent? You must quantitatively support your answer.
The question belongs to Finance and it discusses about calculation of present value of accumulated premiums for an insurance policy. The least present value of the two terms has been calculated.
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