Question

The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $20,000 per year forever. If the required return on this investment is 5.3 percent, how much will you pay for the policy

Answer 1

the amount paid for the policy is $377,358

Step-by-step explanation:

The computation of the amount paid for the policy is as follows;

Here we have to determine the present value i.e.

= Per year amount ÷ required rate of return on investment

= $20,000 ÷ 5.3%

= $377,358

hence, the amount paid for the policy is $377,358

Therefore the same is relevant and determined by applying the above formula