| An investor was afraid that he would become like King Lear in his retirement and beg hospitality from his children, so he purchased grain “tithes,” or shares in farm output, for 540 pounds. The tithes paid him 65 pounds per year for 31 years. |
| Required: |
| What interest rate did the he receive on this investment? (Round your answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) |
| Interest rate | % |
nterest rate
11.64 %
Working Notes for the above answer
Here We are given the present Value of annuity, Number of periods and the amount of annuity.And we require to calculate the interest rate
Using PVA Equation we will Solve this
PVA = (PMT [(1 – (1 / (1 + r)n)) / r]) x (1+r)
PVA =540 pounds
PMT= 65 Pounds
N= 31 Years
Now we will calculate as follow
540 Pounds= (65 pounds[(1 – (1 / (1 + r)31)) / r]) x (1+r)
By using the trial and error method, we have find out the rate
r = 11.64%
