Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Effective Interest Rate
The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.
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5. An investment you are considering is expected to make payments annually forever. The amount of the next payment is expected to be $4.75. Each subsequent payment is expected to increase by 2.9%. Assume that today you buy this investment for $80. What interest rate should you expect to earn annually?

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Given, 

The payment is $4.75

Growth rate is 2.9%

Amount of investment is $80.

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