If you are the beneficiary of a $500,000 life insurance policy, you can either receive the $500,0...
If you are the beneficiary of a $500,000 life insurance policy, you can either receive the $500,000 in cash or you can take $27,400 per year spread over 30 years with the first payment today. which should you choose?
Homework Answers
IRR of the annuity:
-500000+27400/IRR*(1-1/(1+IRR)^20)*(1+IRR)=0
=>IRR=0.9866%
So, if the interest rate offered is less than 0.9866%, accept
annuity otherwise cash today
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