Question
In: Finance
1. A local bank is running the following advertisement in the newspaper: "For just $ 4,000...
1. A local bank is running the following advertisement in the newspaper: "For just $ 4,000 we will pay you $ 240forever!" The fine print in the ad says that for a $ 4,000 deposit, the bank will pay $ 240every year in perpetuity, starting one year after the deposit is made. What interest rate is the bank advertising (what is the rate of return of this investment)?
The interest rate the bank is advertising is.....?% (round to nearest integer.)
Solutions
Expert Solution
Perpetuity = Periodic Cash flow / Interest rate
4000 = 240 / Interest rate
Interest rate = 240 / 4000
Interest rate = 0.06
In percentage, 0,06 * 100
= 6%
Therefore, Interest rate = 6%
jeff jeffy answered 2 years agoRelated Solutions
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