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Larry’s Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $42,000 per year forever. Assume the required return on this investment is 6.7 percent. How much will you pay for the policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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Tundexi

The amount of $626,865.67 is the lump sum that you wil pay for the investment policy today.

What is an investment policy?

This is an policy that is designed to periodically pay the insured a specific sum over a period of time

Given data

Payment per year = $42,000

Required return = 6.7%

Present value = Payment per year / Required return

Present value = $42,000 / 0.067

Present value = $626,865.67

Therefore, the amount of $626,865.67 is the lump sum that you wil pay for the investment policy today.

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