Answer to Question #135813 in Financial Math for Kanishka Gayashan

Question

The present value of a series of payments of $3 at the end of every eight years, forever, is
equal to $9.5. Calculate the effective annual rate of interest.

Answer 1

$$\nu=\dfrac{1}{1+i}$$ $$PV=3\cdot\nu^8 +3\cdot\nu^{16}+...=\dfrac{3\cdot \nu^8}{1-\nu^8 }=9.5$$ $$\nu^8=\dfrac{9.5}{12.5}=0.76$$ $$\dfrac{1}{1+i}=\sqrt[8]{0.76}$$ $$i=\dfrac{1}{\sqrt[8]{0.76}}-1\approx0.0349$$ $$i=3.49\%$$