Question

The may be pay life insurance co. is trying to sell you an investment policy that will pay you and your heirs $33000 per year forever. Suppose a sales associate told you the policy costs $478,000. At what interest rate would this be a fair deal?

Answer 1

Answer:

6.9%

Explanation:

The May be life insurance corporation is trying to sell an investment policy

This policy will pay $33,000 per year forever

A sales associate mention that the policy would cost $478,000

Therefore, the interest rate at which it will be a fair deal can be calculated as follows

Interest rate= Annual inflows/present value

= 33,000/478,000

= 0.0690×100

= 6.9%

Hence the interest rate at which it would be a fair deal is 6.9%