Answer:
Rate of return = 3.667%
Explanation:
This is a for of annuity known as perpetuity. Am annuity is an investment that gives yearly returns on the capital
To get the rate of return we use the following formula
Present value= Yearly payments/Rate of return
360,000= 13,200/rate of return
Cross-multiply
Rate of return (360,000)= 13,200
Rate of return= 13,200/360,000
Rate of return= 0.03666666= 3.667%
Answer:
= 3.67%. This means you are to earn at 3.67% on the policy taken
Explanation:
The question is to determine the rate of return of earnings based on the detailed policy.
Rate of Return
This represents a percentage of any investment that can either be a gain or a loss as calculated based on a particular time period. The Rate of Return can simply be called the RoR.
The Rate of Return in the question is calculated as follows:
First, what is the payment for the policy = $360,000
What is the annuity to be paid a year forever = $13,200
Therefore rate of return is simply
= Annuity/ Initial Policy Payment
= $13,200/ $360,000 x 100
= 3.67%. This means you are to earn at 3.67% on the policy taken
