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you want to establish a perpetuity that pays $6500 per year. Your banker will establish such an account if you deposit $97000 in her institution. calculate the rate that she is paying on the deposit

you want to establish a perpetuity that pays $6500 per year. Your banker will establish such an account if you deposit $97000 in her institution. calculate the rate that she is paying on the deposit

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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you want to establish a perpetuity that pays $6500 per year. Your banker will establish such an account if you deposit $97000 in her institution. calculate the rate that she is paying on the deposit
Expert Solution
Step 1: Introduction and Formula

Solution:

Perpetuity refers to the equal cash flow per period forever.

We know, value of perpetuity = Cash flow per period / Periodic interest rate

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