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George and Yujia currently insure their cars with separate companies, paying $620 and $640 a year
George and Yujia currently insure their cars with separate companies, paying $620 and $640 a year. If they insured both cars with the same company, they would save 15 percent on the annual premiums.
What would be the future value of the annual savings over 10 years based on an annual interest rate of 8 percent? Use Exhibit 1-B. (Round time value factor to 3 decimal places and final answer to 2 decimal places. Do not round intermediate calculations. Omit the "$" sign in your response.)
Expert Solution
Given,
Time period (n)= 10 years
George car insure= 620
Yujia car insure= 640
Total = 620+ 640
= 1260
Saving on annual premium= 15%
Annual savings= 1260* 15%
= 189
Annual interest rate (r)= 8%
Total savings over 10 years= Annual saving* ((((1+ r)^ n)-1)/ r)
= 189* ((((1+ 8%)^ 10) -1)/ 8%)
= 189* 14.48656
= 2737.96
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