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Fynjy0 [20]
2 years ago
10

A local bank’s advertising reads: "Give us $50,000 today, and we’ll pay you $800 every year forever." If you plan to live foreve

r, what annual interest rate will you earn on your deposit?1.92%1.60%2.56%2.24%
Business
1 answer:
Natalka [10]2 years ago
5 0

Answer:

The correct response is Option b (1.60%).

Explanation:

According to the question,

Initial investment,

= $50,000

Perpetual annual cash flows,

= $800

Now,

The interest rate will be:

= \frac{Perpetual \ annul \ cash \ flows}{Initial \ investment}

On substituting the given values, we get

= \frac{800}{50,000}

= 0.016

i.e.,

= 1.60 \ percent

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