Homework Answers
Monthly Payment = $25
Time Period = 20 years = 240 months
Payment Growth Rate = 1%
Current Price = $3,800
So,
Present Value of Growing Annuity = P/(r - g)[1 - ((1 + g)/(1 + r))n]
3800 = 25/(r - 0.01)[1 - (1.01/(1 + r))240]
r = 1.41%
Return Rate = 12(0.0141) = 16.92%
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