What's the rate of return you would earn if you paid $4,000 for a perpetuity that pays $75 per year?
To calculate the rate of return for a perpetuity, you can use the formula:
Rate of Return = Annual Payment / Purchase Price
In this case, the annual payment is $75 and the purchase price is $4,000. So, we can substitute these values into the formula:
Rate of Return = $75 / $4,000
To find the decimal representation of this fraction, divide 75 by 4,000:
Rate of Return = 0.01875
Multiply this decimal by 100 to express the rate of return as a percentage:
Rate of Return = 1.875%
Therefore, the rate of return you would earn if you paid $4,000 for a perpetuity that pays $75 per year is 1.875%.