162k views
3 votes
Live Forever Insurance Company is selling a perpetual annuity contract that pays $2,400 monthly. The contract currently sells for $332,000.

a. True
b. False

User Reynevan
by
8.6k points

1 Answer

6 votes

Final answer:

The statement provided does not contain enough information to determine its truthfulness. It requires a discount rate to calculate the present value of the perpetual annuity, which was not provided.

Step-by-step explanation:

The question is asking whether a certain statement about a perpetual annuity contract is true or false.

However, the provided information does not contain a complete statement, just data about an annuity contract.

A perpetual annuity is a type of investment that provides regular payments indefinitely.

To determine if such a contract offered by Live Forever Insurance Company is correctly priced, we need to calculate the present value of the annuity based on a discount rate (which is not provided in the question).

The formula for the present value of a perpetual annuity is PV = PMT / r, where PV is the present value, PMT is the payment amount, and r is the discount rate per period.

Without the discount rate, we cannot assess the truth of the statement concerning the given selling price being appropriate.

User Ronaldtgi
by
7.6k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories