Question

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: $800
Second birthday:800
Third birthday: 900
Fourth birthday: 900
Fifth birthday: 1,000
Sixth birthday: 1,000

After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $350,000. The relevant interest rate is 11 percent for the first 6 years and 7 percent for all subsequent years, is the policy worth buying?