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 $ 950 Second birthday $ 950
Third birthday $ 1,050 Fourth birthday $ 850 Fifth birthday $ 1,150 Sixth birthday $ 950 After the child's sixth birthday, no more payments are made.
When the child reaches age 65, he or she receives $450,000.
If the relevant interest rate is 15 percent for the first six years and 7 percent for all subsequent years, what would the value of the deposits be when the policy matures?