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Curly’s Life Insurance Co. is trying to sell you an investment policy that will pay you...

Curly’s Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $37,000 per year forever. A representative for Curly’s tells you the policy costs $620,000. At what interest rate would this be a fair deal? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Interest rate ______________

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Answer #1
Inflows from insurance forever in perpetuity = 37000
Policy cost = 620000
Value of annuity in perpetuity formula is to be applied here.
Policy cost = Inflows / interest rate
620000 = 37000/ interest rate
Interest rate = 37000 /620000
0.059677 or 5.97%
So, at 5.97% it would be a fair deal.
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