Prudential Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs K200, 000 per year forever. If the required return on this investment is 6.5 percent, how much will you pay for the policy? Suppose the Prudential Life Insurance Co. counter offers and told you that the policy costs K340,000. At what interest rate would this be a fair deal?

Prudential Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs K200, 000 per year forever. If the required return on this investment is 6.5 percent, how much will you pay for the policy? Suppose the Prudential Life Insurance Co. counter offers and told you that the policy costs K340,000. At what interest rate would this be a fair deal?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 16P

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