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(Do not round intermediate calculations. If the absolute value of your result is less than 1,...

  1. (Do not round intermediate calculations. If the absolute value of your result is less than 1, then put a zero before the decimal point, like 0.16.)

    Farm Family Life Insurance Co. is selling a contract that pays $7,500 monthly to you and your heirs eternally. The contract currently sells for $585,000.

    What is the monthly return on this investment vehicle? %  (Enter your answer in percentage rounded to 2 decimal places, e.g., 32.16.)

    What is the APR? %   (Enter your answer in percentage rounded to 2 decimal places, e.g., 32.16.)

    What is the effective annual return? % (Enter your answer in percentage rounded to 2 decimal places, e.g., 32.16.)

Solutions

Expert Solution

monthly return=monthly payment/current value

=7500/585000

=1.28%(Approx)

APR=1.28% per month*12 months

=15.38%(Approx)

EAR=[(1+APR/m)^m]-1
where m=compounding periods

=[(1+0.0128)^12]-1

=16.52%(Approx)

jeff jeffy answered 2 years ago
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