10)Calculating Perpetuity Values

Finance Jan 15, 2021

10)Calculating Perpetuity Values. Curly's Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $30,000 per year forever. If the required return on this investment is 6 percent, how much will you pay for the policy? 10:49 PM

Expert Solution

Annual Payment = $30,000
Required Return = 6.00%

Value of Perpetuity = Annual Payment / Required Return
Value of Perpetuity = $30,000 / 0.06
Value of Perpetuity = $500,000

Therefore, you will pay $500,000 for the policy.

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