Question

Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1,400 monthly. The contract currently sells for $113,000. a. What is the monthly return (monthly discount rate) on this investment vehicle? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Based on the monthly rate, what is the APR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) What is the effective annual return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. % a. Monthly return b. APR % C. EAR %

Answer 1

Based on the CAPR) Answer: (2.) To find the monthly return on this innestment, the formula is wrest Monthly Return Interest Payment floo Present value 220 ett & 1400 xloo $113000 ( 1.24% (b). Percentage Rate (APR) 1.24% x 12 month 14.88%

(C). Effective annual Return is equal to s to the power of Number of Compoundings, minus l. od non I plus the monthly Interest rate, Gol So, go Effective Annual Return 12 = (1 + Interest Rate morithly) - 1 = (1 + 1-24%) = (1.0124)12 - - 1.1594-1 0.1594 61 15.94 %

Thankyou.......