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3 years ago

9

You will pay $7,000 now to purchase a perpetuity which will pay you and your heirs $340 at the end of each year, forever. What i

s the rate of return on this perpetuity?

2 answers:

Katen [24]3 years ago

5 0

Answer:

4.86%

Explanation:

Interest rate of a perpetuity = amount / present value

$340 / $7,000 = 0.048571 = 4.86%

I hope my answer helps you

Naddika [18.5K]3 years ago

4 0

Answer:

4.86%

Explanation:

Interest rate of a perpetuity = amount / present value

$340 / $7,000 = 0.048571 = 4.86%

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3 years ago

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Answer:

a. Prepare the journal entry at the date of the bond purchase.

January 1, 2020, bonds purchased at a premium

Dr Bonds receivable 300,000

Dr Premium on bonds receivable 22,744.44

Cr Cash 322,744.44

b. Prepare a bond amortization schedule.

Date Interest Cash Premium Unamortized Carrying

revenue received amortization premium value

1/1/20 - -322,744.44 - 22,744.44 277,255.56

1/1/21 32,274.44 36,000 3,725.56 19,018.88 280,981.12

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1/1/23 31,492.08 36,000 4,507.92 10,412.85 289,587.15

1/1/24 31,041.23 36,000 4,958.77 5,454.08 294,545.92

1/1/25 30,545.92 336,000 5,454.08 0 0

c. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2020.

Dr Interest receivable 36,000

Cr Interest revenue 32,274.44

Cr Premium on bonds receivable 3,725.56

(322,744.44 x 10%) - (300,000 x 12%) = 32,274.44 - 36,000 = 3,725.56

d. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2021.

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Cr Interest revenue 31,901.89

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amortization year 3:

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amortization year 4:

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amortization year 5:

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