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What is the effective annual rate of return

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Question 1: You are thinking about purchasing a perpetuity that will pay you $2,500 1 year from today. After this the annual payment will increase by 3% per year. If you wish to earn 8% compounded annually how much should you pay for the perpetuity?

Question 2: You just paid $50,000 for a perpetuity that will pay you $2,400 1 year from today. After this ?rst payment the amount of payment will increase by 2% each year. What is the effective annual rate of return that you will earn?

Question 3: You have decided to buy a perpetuity that makes annual payments. The ?rst payment will be made 1 year from today. After the initial payment, the amount of the payments will increase by 1% per year. You paid $75,000 for the perpetuity. You wish to 3% compounded annually. What will be the amount of the first payment?

Reference no: EM132485460

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