Your subscription to Investing Wisely Weekly is about to expire.You plan to subscribe to the magazine for the rest of your life,and you can renew it by paying $85 annually,beginning immediately,or you can get a lifetime subscription for $740,also payable immediately.Assuming that you can earn 6.0% on your funds and that the annual renewal rate will remain constant,how many years must you live to make the lifetime subscription the better buy?
A) 10.48
B) 10.72
C) 11.65
D) 9.32
E) 11.42

Question

Quizplus · Accepted Answer

To find the breakeven point, calculate the present value of annual payments and compare it to the lifetime subscription cost. The formula for the present value of an annuity is used: PV = Pmt × [(1 - (1 + r)^-n) / r]. Solving for n when PV equals $740 gives approximately 11.65 years.

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