Question

Bette has a life insurance policy that will pay her family $40,000 per year if
she dies. Bette's insurance company expects that it would have to put
$2,500,000 into a bank account so that it could make the payments. What
does Bette's insurance company expect the interest rate to be?
O A. 0.4%
O B. 2%
O C. 2.3%
O D. 1.6%

Answer 1

Divide the yearly payout by the amount in the bank:

40,000 / 2,500,000 = 0.016

Multiply by 100 to get the percentage:

0.016 x 100 = 1.6%

The answer is D. 1.6%