Question

1.

(1 pt) A perpetuity pays $540 annually. At the time of the second payment, the value of the entire perpetuity (including the first payment) is $6600. What is the smallest possible effective rate of interest? (Round your answer to four places after the decimal.)

2.

(1 pt) The Little Red-Haired Girl makes quarterly deposits into an account paying an effective interest rate of 2.7% per quarter. The first deposit is $4650, and each subsequent deposit is $150 SMALLER than the previous one. How much is in the account immediately after the 11th deposit?

Answer 1

Ans. 1.

The face value/ value of entire perpetutiy = $6600

The issue price =$540 Total yearly price= $540*12 = 6480

Effective Interest rate = (($6600-$6480)/$6480)*100 = 1.8519%

Ans. 2

	Deposit	Balance Per Quarter	Interet Quarterly
1	4,650.00
2	4,500.00
3	4,350.00	13,135.00	365.00
4	4,200.00
5	4,050.00
6	3,900.00	11,822.00	328.00
7	3,750.00
8	3,600.00
9	3,450.00	10,508.00	292.00
10	3,300.00
11	3,150.00
Total Balance after 11 th Deposit	41,915.00
12	3,000.00	9,194.85	255.15

$ 41915 after 11th Deposit