The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $33,000 per year forever. Suppose a sales associate told you the policy costs $478,000. At what interest rate would this be a fair deal?

The interest rate for this investment policy would be \approx imately 6.91%. Here's the math: The policy costs $478,000 upfront, but it will pay out $33,000 per year forever. To calculate the present value of this stream of payments, we can use the formula for perpetuity: PV = C/r, where PV is the present value, C is the annual payment, and r is the interest rate. In this case, we want to solve for r: PV = $33,000 / r $478,000 = $33,000 / r r = $33,000 / $478,000 = 0.0691 = 6.91% So if the investment policy truly pays out $33,000 per year forever and costs $478,000 upfront, an interest rate of 6.91% would make it a fair deal. However, it's important to note that perpetuities are rare in the real world and there may be other factors to consider before investing in this policy.