Final answer:
The monthly return on the investment is approximately 1.71%, the APR is approximately 20.55%, and the effective annual rate (EAR) is about 23.17% for the Live Forever Life Insurance Company perpetuity contract.
Step-by-step explanation:
To calculate the monthly return on the investment in the Live Forever Life Insurance Company perpetuity contract, we can use the formula for the return as the payment divided by the price of the contract. Thus, the monthly return (r) is calculated as $1,250 / $73,000 = 0.01712329 or about 1.71% per month.
To find the annual percentage rate (APR), we simply multiply the monthly return by 12 (the number of months in a year). Therefore, the APR is 0.01712329 x 12 = 0.20547948 or about 20.55%.
Finally, the effective annual rate (EAR) can be found using the formula (1 + monthly rate)^12 - 1. So the EAR is (1 + 0.01712329)^12 - 1 = 0.231678 or about 23.17%.