Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1,40

Question

Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1,400 monthly. The contract currently sells for $113,000.

What is the monthly return on this investment vehicle? (Round your answer to 2 decimal places. (e.g., 32.16))

What is the APR? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the effective annual return? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1,400 monthly. The contract currently sells for $113,000.

What is the monthly return on this investment vehicle? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Monthly return = 1400/113000 = 0.01239 ( 1.239 % monthly)

APR = 12*0.01239= 0.14868 = 14.868 annual

EAR = (1+0.01239 )^12 -1 = 0.15924 = 15.924%

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