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:
After the child’s sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $150,000. If the relevant interest rate is 9 percent for the first six years and 5.5 percent for all subsequent years, is the policy worth buying?
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