The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that

Question

The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $22,000 per year forever. If the required return on this investment is 5.80 percent, how much will you pay for the policy? (Round your answer to 2 decimal places. (e.g., 32.16))

The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $22,000 per year forever. If the required return on this investment is 5.80 percent, how much will you pay for the policy? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Solution-

Cash flow is perpetuity.

So, for the calculation of Present Value of perpetuity as follows....

Present value = C / r

Present value = $22,000 / 0.058

Present value = $379,310.35

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