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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What is a Perpetuity? - Definition & Formula
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Chapter 6 / Lesson 4
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Learn 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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