You grandfather invested $16,600 years ago to provide annual payments of $700 a year to his heirs forever. What is the rate of return?

Question

Quizplus · Accepted Answer

To find the rate of return, we can use the formula for perpetuity payments:

(rate of return) = (annual payment) / (original investment)

Plugging in the values from the problem, we get:

(rate of return) = 700 / 16,600

(rate of return) ≈ 0.0422, or 4.22%

Therefore, the rate of return is 4.22%, which corresponds to choice B.

You Grandfather Invested $16,600 Years Ago to Provide Annual Payments