# Curly's Life Insurance Co. is trying to sell you an investment policy that will pay you and your...

## Question:

Curly's Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $30,000 per year forever.

If the required return on this investment is 6%, how much will you pay for the policy?

## Perpetual Payments:

A stream of payments that would be received each period without any maturity date forever is called a perpetuity. The valuation of perpetuity is dependent on the cash flow and the required rate of interest.

## Answer and Explanation: 1

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*You would pay no more than $500,000 for the policy*

The Value of life insurance policy as a perpetuity can be represented as:

{eq}Value =...

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Chapter 6 / Lesson 4Learn what perpetuity is in finance. Understand the meaning and definition of perpetuity, its characteristics and how its present value can be found using a formula.

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