Alex has a $1,000,000 life insurance policy that will pay his wife Stephanie a level dollar amount over 15 years after his death.If the insurance company credited a 7.5% rate to the policy,what is the amount she will receive each year?

Question

Quizplus · Accepted Answer

To calculate the level amount Stephanie will receive each year, we can use the Present Value of an Annuity Formula, which is:
PMT = PV x r / (1 - (1 + r)^-n)
Where PMT is the level amount Stephanie will receive each year, PV is the present value of the insurance policy (which is $1,000,000), r is the annual interest rate (7.5%), and n is the number of years Stephanie will receive the payments (15).

Using these values, we can calculate:
PMT = $1,000,000 x 0.075 / (1 - (1 + 0.075)^-15) = $113,287.24

Therefore, the best choice is C, $113,287.24.

Alex Has a $1,000,000 Life Insurance Policy That Will Pay