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The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and...

Question:

The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $26,000 per year forever. Suppose a sales associate told you the policy costs $471,000. At what interest rate would this be a fair deal?

Perpetuity:

It means that a sum of money is received/paid forever. Here, in the question $26,000 shall be paid to the insured for forever indicating that the stream of cashflow is in the form of perpetuity.

Answer and Explanation:

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How to Calculate the Present Value of an Annuity

from Business 110: Business Math

Chapter 8 / Lesson 3
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