Problem 4 Uncle Larry would like to supplement his pension so he calls his...
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Problem Uncle Larry would like to supplement his pension so he calls his insurance company to find out about his options. He is told that he could pay $ every quarter for ten years making times payments at the end of each quarter until his retirement; first payment due one quarter from today and then he will start receiving quarterly payments of $ forever. He will receive the first $ in ten years and one quarter, ie one quarter after he made his last payment; after he passes away his heirs and their heirs, etc. will continue to receive the quarterly payments forever. What is the effective annual rate EAR the bank used to calculate the terms of this deal?
Problem
Uncle Larry would like to supplement his pension so he calls his insurance company to find out about his options.
He is told that he could pay $ every quarter for ten years making times payments at the end of each quarter
until his retirement; first payment due one quarter from today and then he will start receiving quarterly payments of
$ forever. He will receive the first $ in ten years and one quarter, ie one quarter after he made his last
payment; after he passes away his heirs and their heirs, etc. will continue to receive the quarterly payments forever.
What is the effective annual rate EAR the bank used to calculate the terms of this deal?
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