A local bank is running the following advertisement in the newspaper: "For just $3,000, we will pay you $240 forever!" The fine print in the ad says that for a $3,000 deposit, the bank will pay $240 every 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)?

Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 8EA: You put $250 in the bank for S years at 12%. A. If interest is added at the end of the year, how...
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A local bank is running the following advertisement in the
newspaper: "For just $3,000, we will pay you $240 forever!" The
fine print in the ad says that for a $3,000 deposit, the bank will
pay $240 every 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)?
Transcribed Image Text:A local bank is running the following advertisement in the newspaper: "For just $3,000, we will pay you $240 forever!" The fine print in the ad says that for a $3,000 deposit, the bank will pay $240 every 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)?
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