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NeX [460]
3 years ago
9

Curly’s Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $43,000 per year forever.

A representative for Curly’s tells you the policy costs $680,000. At what interest rate would this be a fair deal?
Business
1 answer:
evablogger [386]3 years ago
5 0

Answer:

rate = 6.3235%

At a market rate of 6.3235% this will be  a fair deal

Explanation:

under perpetuities the principal is never redeem. the investor receive cash payment for an indefinite period of time

This means:

perpetuities  present value = C/r

where:

C= annual payment

r= rate

680,000 = 43,000/rate

43,000/680,000 = rate

0.06323529 = rate

rate = 6.3235%

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