Question
In: Finance
Larry’s Life Insurance Co. is trying to sell you an investmentpolicy that will pay you...
Larry’s Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $25,000 per year forever. If the required return on this investment is 4percent, how much will you pay for the policy?
Solutions
Expert Solution
The question refers to perpetuity payments. So, the question is solved by computing the present value of perpetuity payments.
Present value of the perpetuity payment each year= annual payment/discount rate
= $25,000/0.04
= $625,000
Therefore, I will pay $625,000 for the policy.
jeff jeffy answered 2 years agoRelated Solutions
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