What quarterly compounded nominal rate of return is required to return $2,000 per quarter if the perpetuity fund is $98,000? What is the effective rate of interest?

Nominal rate

An interest rate or return quoted on an investment or loan, not adjusted for inflation or other factors.

Effective rate

The total compounded interest rate, expressed annually, that represents the actual financial cost of a loan or investment.

Evaluate the worth of different annuities and perpetuities, such as ordinary annuities, annuities due, deferred annuities, and perpetuities, when faced with varying compounding frequencies.
Employ formulas for compound interest in resolving problems connected with savings, loans, and investments.

Verified Answer

Final Answer :

8.16% compounded quarterly; 8.41%

Learning Objectives

Evaluate the worth of different annuities and perpetuities, such as ordinary annuities, annuities due, deferred annuities, and perpetuities, when faced with varying compounding frequencies.
Employ formulas for compound interest in resolving problems connected with savings, loans, and investments.