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What is the future value of $12,857 in 10 years assuming an interest rate of 8...

What is the future value of $12,857 in 10 years assuming an interest rate of 8 percent compounded monthly?

Maybepay Life Insurance Co. is selling a perpetual contract that pays $5,849/year. The contract currently sells for $154,173. What is the rate of return on this investment? Enter answer with 4 decimals (e.g. 0.1234).

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Expert Solution

Question 1:

r = 8%/12 = 0.6667% (monthly), n = 10 * 12 = 120 months

FV = $12,857 * (1 + 0.006667)120

FV = $12,857 * 2.21964

FV = $28,537.91

Question 2:

Rate for perpetuity = Annual Payment/Present value

Rate for perpetuity = $5,849/$154,173

Rate for perpetuity = 3.794% (or 0.0379)

jeff jeffy answered 2 years ago
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