2C Q2

Part 1

Calculating Perpetuity Values [LO1] The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $40,000 per year forever. If the required return on this investment is 5.1 percent, how much will you pay for the policy?

Part 2

Calculating Perpetuity Values [LO1] In the previous problem, suppose a sales associate told you the policy costs $650,000. At what interest rate would this be a fair deal?

Part 3

Growing Annuity [LO1] You have just won the lottery and will receive $1,500,000 in one year. You will receive payments for 30 years, and the payments will increase by 2.5 percent per year. If the appropriate discount rate is 7 percent, what is the present value of your winnings?

Please specify answers between Parts 1, 2, & 3