Alfred Smith wants to purchase life insurance that will guarantee his family $50,000 (in R-dollars) per year in bond interest income forever. The interest rate (im) from corporate bonds is expected to pay 8% per year, and theinflation rate is expected to average 3% per year. How much life insurance should Alfred purchase to protect his family forever?

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Amortized Loans

The term "amortization" refers to spreading the value of a loan or a debt over a series of regular payments or installments comprising of both the principal and interest amount. It generally involves the process where in the value of a loan or an intangible asset is written down over its maturity period.