Calculating Perpetuity Values: The Perpetual Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $20,000 per year forever. If the required return on this investment is 3.4 percent, how much will you pay for the policy? Suppose the Perpetual Life Insurance Co. told you the policy costs $475,000. At what discount rate would this be a fair deal?

Calculating Annuities: You are planning to save for retirement over the next 30 years. To do this, you will invest $850 per month in a stock account and $250 per month in a bond account. The return of the stock account is expected to be 11 percent, and the bond account will return 6 percent. When you retire, you will combine your money into an account with a return of 5 percent. All interest rates are APRs with monthly compounding. How much can you withdraw each month from your account assuming a 25-year withdrawal period?