Maybepay Life Insurance Co. is selling a perpetual contract that pays $3700/year. The contract currently sells...

Maybepay Life Insurance Co. is selling a perpetual contract that pays $3700/year. The contract currently sells for $191000. What is the rate of return on this investment? Enter answer as 4 decimals (e.g. 0.1234).

Solutions

Expert Solution

Present value of a perpetuity = C/r

We know that C = 3700
We know that the present value of perpetuity = 191000

191000 = 3700/r
where r is the rate of return on the perpetuity
r = 3700/191000
r = .0194

The rate of return on the investment is .0194

jeff jeffy answered 1 year ago

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