Question

Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1723 monthly. The contract currently sells for $126268. What is the effective annual return on this investment vehicle? (Enter your answer as a percentage, omit the "%" sign in your response, and round your answer to 2 decimal places. For example, 0.12345 or 12.345% should be entered as 12.35.)

Answer 1

Effective annual return			=	Annual return / Investment
			=	$       20,676	/	$       1,26,268
			=	16.37%
Working:
Annual return			=	Monthly return * number of months in the year
			=	$         1,723	*	12
			=	$       20,676