Question

wmpany Question 7 A life insurance is selling an investment policy that will pay you and your heirs $17500 por year forever, with the first payment starting today on this kind of investment of 6% and they sell this policy for $295.000 a: Is this a good investment for you? show your work bi At what rate would you breakeven on this investment if the first payment is at the end of this It you require 0 return year?

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Answer 1

Sol. A 295000 17500 Total Investment (-) received first payment Net Investment Rate of Return Require Return is 6% 277500 6.306306306 Yes this is a good investment beacause it is giving 6.306% return which is more than you require. 1. We have taken net investment for rate of return because after purchasing this policy compa will immediately Pay 17500 to you. Sol. B. Break even if first Payment is at the end of this year. 17500-295000x100 5.93220339 so breakeven on this investment is at the Rate of 5.93% if first payment is at the end of this year.