Curly’s Life Insurance Co. is trying to sell you an investment policy that will

Question

Curly’s Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $41,000 per year forever. A representative for Curly’s tells you the policy costs $660,000.

At what interest rate would this be a fair deal? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Curly’s Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $41,000 per year forever. A representative for Curly’s tells you the policy costs $660,000.

Explanation / Answer

Policy amount = annual cash flow /required rate

   660,000 = 41,000 /Required rate

Required rate = 41,000/ 660,000

                      = .0621 or 6.21%

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