A person,who is currently age 50,invests $A today.She is to receive two payments of $5000,one when she reaches age 55 and the second when she reaches age 60.The first payment is guaranteed,but the second payment is paid only if she is alive at age 60 to collect it.You are given the probability of a 50 year old female surviving to age 55 is 0.9867 and surviving to age 60 is 0.9654.If the interest rate is 4%,what is the value of A?
A)$7487.46
B)$7432.80
C)$7370.58
D)$7315.93

Question

Quizplus · Accepted Answer

The present value of the first payment is $5000 / (1.04)^5 = $4109.57. The present value of the second payment, considering the probability of survival, is $5000 * 0.9654 / (1.04)^10 = $3260.99. Adding these gives $7370.56, which rounds to $7370.58.

A Person,who Is Currently Age 50,invests $A Today