Answer:
$444,444.44
Explanation:
Larry's life insurance corporation is trying to sell an investment policy that will pay you and your heirs a total amount of $32,000 per year
The required return on this investment is 7.2%
= 7.2/100
= 0.072
Since the cash flow is a perpetuity then, the amount that will be paid for the policy can be calculated as follows
PV= C/r
= $32,000/0.072
= $444,444.44
Hence the amount of money that will be paid for the policy is $444,444.44
"The cash flow is a perpetuity then, the amount that will be paid for the policy is = $444,444.44". To understand the calculations, check below".
When Larry's life insurance corporation is trying to sell an investment policy that will pay you and also your heirs a total amount of $32,000 per year
Then The required return on this investment is 7.2%
After that = 7.2/100
Then = 0.072
Since that when the cash flow is perpetuity then, the amount that will be paid for the policy can be calculated as follows:
The formula is PV= C/r
Then = $32,000/0.072
Therefore, = $444,444.44
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