To determine how much you should pay for the life insurance policy that promises to pay $44,000 per year forever, we need to use the formula for the present value of a perpetuity. The formula is:

$PV = \frac{C}{r}$

Where:

• $PV$ = Present value (the price you'll pay for the policy)
• $C$ = Cash flow per year ($44,000)
• $r$ = Required return (6.9% or 0.069)

Now, applying the values:

$PV = \frac{44,000}{0.069}$

Let's calculate the value.

$PV = 637,681.16$

Therefore, you should be willing to pay $637,681.16 for the policy.

Would you like further clarification or more details?

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Here are five related questions for you:

1. How does the perpetuity formula change if the payments are not annual but quarterly?
2. What if the required return changes to 7.5%, how much would the policy cost then?
3. How does inflation impact the real value of perpetual payments like this?
4. How would you calculate the present value if the payments were for 30 years instead of forever?
5. Can perpetuities exist with variable payments instead of fixed ones?

Tip: When comparing investment returns, always ensure you're looking at the same time period for rates (e.g., annually, quarterly, etc.).