Cury's Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $30,000 per forever. If the required return on this investment is 6 percent, how much will you pay for the policy?

Cury's Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $30,000 per forever. If the required return on this investment is 6 percent, how much will you pay for the policy?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 22P

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

Cury's Life Insurance Co. is trying to sell you an
investment policy that will pay you and your
heirs $30,000 per forever. If the required
return on this investment is 6 percent, how
much will you pay for the policy?

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