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Insurance company is selling one perpetuity product that willpay $4,136 every year. The annual interest...

Insurance company is selling one perpetuity product that will pay $4,136 every year. The annual interest rate is 6.8% compounded annually. How much you need to pay to buy such perpetuity product today?

 

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Expert Solution

Value of a perpetuity is given by the following formula

Value of perpetuity

= Annual payments / Interest rate

Where,

Annual payments = $4,136 every year

Interest rate = 6.8% or 0.068

So, Value of perpetuity

= $4,136 / 0.068

= $60,823.53

jeff jeffy answered 2 years ago
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