A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 2% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 16% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? a. What is today's value of the bequest? Today's value of the bequest is $ www (Round to the nearest dollar.)

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A:

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Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.