You grandfather won a lottery years ago.The value of his winnings at the time was $50,000.He invested this money such that it will provide annual payments of $2,400 a year to his heirs forever.What is the rate of return?

Question

Quizplus · Accepted Answer

The rate of return can be found using the formula for the perpetuity: $ \text{Rate of Return} = \frac{\text{Annual Payment}}{\text{Principal}} $. Plugging in the given values: $ \text{Rate of Return} = \frac{2400}{50000} = 0.048 $ or 4.80 percent.

You Grandfather Won a Lottery Years Ago