1. ] The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $30,000 per year forever. If the required return on this investment is 7%, how much will you pay for the policy? Suppose instead a sales associate told you the policy costs $754,000. At what interest rate would this be a fair deal?
2. [2] 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 1.5% per year. If the appropriate discount rate is 3.2%, what is the present value of your winnings?