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The Maybe Pay 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 5.8 percent, how much will you pay for the policy

1 Answer

5 votes

Answer:

the amount that should be paid for the policy is $431,034.48

Step-by-step explanation:

The computation of the amount that should be paid for the policy is given below:

Present value of perpetual cash flow = Perpetual cash flow ÷ Rate of return

= $25,000 ÷ 5.8%

= $431,034.48

Hence, the amount that should be paid for the policy is $431,034.48

The same should be considered and relevant

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