Question

Toshi’s Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $25,000 per year forever. If your required rate of return on this investment is 7%, how much the most are you willing to pay for the policy? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)

Answer 1

Answer:

$357,142.86

Explanation:

Data provided in the question

Payment made per year = $25,000

Required rate of return on the investment = 7%

So by considering the above information, the willing to pay for the policy is

Willing to pay = Payment made per year ÷ Required rate of return on the investment

= $25,000 ÷ 0.07

= $357,142.86

By dividing the payment made per year by the required rate of return we can get the willing to pay amount