Curly’s Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $34,000 per year forever. Suppose Curly’s told you the policy costs $590,000. Required: At what interest rate would this be a fair deal? (Do not include the percent sign (%). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Fair value of perpetual payment = Annual payment / cost of required return or interest rate
here Fair value of perpetual payment = policy cost = $590,000
so $590,000 = $34,000 / interest rate
so interest rate = 5.76
Curly’s Life Insurance Co. is trying to sell you an investment policy that will pay you...
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