Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1,500 monthly. The contract currently sells for $115,000. a. What is the monthly return on this investment vehicle?
b. What is the APR?
c. What is the effective annual return?

1.30%

15.60%

16.77%

Explanation:

The monthly return is the amount payable monthly divided  by the current price of the investment vehicle.

monthly return=$1500/$115,000=1.30%

Annual percentage return=monthly return*12=1.30% *12=15.60%

Effective annual return=(1+1.30%)^12-1

EAR=1.167651776 -1

EAR=16.77%

the answer is "b.the increased supply will create a surplus. "

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