Question

For life insurance policies, some of the premium pays for the cost of the insurance, and the remainder goes toward the cash value of the policy and earns interest like a savings account. Suppose that, on the cash value of their policies, one insurance company pays 4.8% compounded monthly and another pays 4.82% compounded semiannually. Use effective rates to determine which company offers the higher yield. Write your answer as a percent rounded to three decimal places.

Answer 1

The conclusion is 4.8% interest per monthly yield nire interest than 4.82 semi-annually

Step-by-step explanation:

Consider that "X" cash value goes like a solving account, we consider for one year;-

1. For 4.8% compound monthly

amount+Principal (1+i/m)^nm

Where principal = x

i=4.8%

n=12

m=12

Amount= x(1+0.048/12)^12x2

=x(1+0.004)^144

=x(1.004)^144

=X(1.776865)

Amount=1.7769x

2, When they offer 4.82% semi annually, then

amount+Principal (1+i/m)^nm

Where principal = x

i=4.82%= 0.00482

n=12

m=2

Amount= x(1+0.0482/12)^12x2

=x(1+0.00482)^24

=x(1.00482)^24

=X(1.122324)

Amount=1.12232x

The conclusion is 4.8% interest per monthly yield nire interest than 4.82 semi-annually.