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A life insurance company offers the option of receiving $500,000 as a lump-sum, or $60,000 per year over 10 years. a) If market interest rates
A life insurance company offers the option of receiving $500,000 as a lump-sum, or $60,000 per year over 10 years.
a) If market interest rates are 5%, what is the present value of the annual cash payment option?
b) Suppose market interest rates are 2.5%, what is the present value of the annual cash payment option?
c) What is the implied yield to maturity if these two options are deemed equivalent?
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