Eliel, a 42 -year-old software developer, purchases a whole life insurance policy with a $400,000 death benefit. The policy includes a cash value component that grows at a fixed interest rate of 5% annually. Eliel contributes $12,000 annually to the policy's cash value portion, and the accumulated cash value will continue to grow at the same 5% interest rate. What will the cash value portion be after 20 years? Use the formula A=(P((1+(r)/(n))^nt−1))/((r)/(n))
Answer
A
198 dollars comma 395 point 7 3
B
396 dollars comma 791 point 4 5
C
636 dollars comma 791 point 4 5
D
240 dollars comma 000 point 0 0
Explanation
Because Eliel contributes once per year, use n = 1, with P = $12,000, r = 0.05, and t = 20. Substituting into the formula gives A = 12,000 × ((1.05^20 − 1) ÷ 0.05) ≈ $396,791.45. Therefore, the cash value after 20 years is $396,791.45, choice B.
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