Your uncle named you beneficiary of his life insurance policy. The insurance company gives you a choice of $100,000 today or a 1
2-year annuity of $12,000 at the end of each year. What rate of return is the insurance company offering?
1 answer:
Answer: 3.085% per year
Step-by-step explanation:
P = 100000
F = 12*12000 = 144000
t = 12
144000 = 100000(1 - r)¹²
144000/100000 = (1 - r)¹²
1.44 = (1 - r)¹²
log 1.44 = log (1 - r)¹²
log 1.44 = 12 log (1 - r)
0.158362 = 12 log (1 - r)
0.158362/12 = log (1 - r)
0.013197 = log (1 - r)
10⁰.⁰¹³¹⁹⁷ = 1 - r
1.03085 = 1 - r
r = 1.03085 - 1
r = 0.03085
r = 3.085 %
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