Question

A local bank is running the following advertisement in the​ newspaper: "For just $ 1 comma 000 we will pay you $ 100 ​forever!" The fine print in the ad says that for a $ 1 comma 000 ​deposit, the bank will pay $ 100 every year in​ perpetuity, starting one year after the deposit is made. What interest rate is the bank advertising​ (what is the rate of return of this​ investment)?

Answer 1

Rate of return of this investment=10%

Step-by-step explanation:

The interest rate/rate of return can be described as the rate at which a given investment increases in value over fixed period in time, usually annually.

The rate of return can be calculated using the formula below;

Rate of return=(Current value-Original value)/Original value×100

where;

Original value=$1,000

Current value=Original value+Interest=(1,000+100)=1,100

replacing;

Rate of return=(1,100-1,000)/1,000=0.1×100=10%

Rate of return=10%