Self-insurance is being considered for one portion of a chemical company. The fixed-capital…

Self-insurance is being considered for one portion of a chemical company. The fixed-capital investment involved is $50,000, and insurance costs for complete protection would amount to $400 per year. If self-insurance is used, a reserve fund will be set up under the company’s jurisdiction, and annual insurance premiums of $300 will be deposited in this fund under an ordinary annuity plan. AI1 money in the fund can be assumed to earn interest at a compound annual rate of 5 percent. Neglecting any charges connected with administration of the fund, how much money should be deposited in the fund at the beginning of the program in order to have enough money accumulated to replace a complete $SO,ooO loss after 10 years?

 

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