An insurance company has made you the following retirement offer. If you pay them $100,000 now, you will receive payments of $8000 a year for 10 years. After this they will pay you $9000 a year forever. Recall that a “Capitalized Cost” is the amount of money that will provide annual payments indefinitely by paying out the interest.
a) What is the Capitalized Cost of the $9,000 payments in terms of variable (i) at Year 10?
b) Solve for the rate of return (i) for the overall investment to the nearest 0.5%