Question

Suppose the borrowing rate r_B = 10\%r B ​ =10% compounded annually. However, the lending rate (or equivalently, the interest rate on deposits) is only 8\%8% compounded annually. Compute the difference between the upper and lower bounds on the price of an perpetuity that pays \(A = 10,000\\)$ per year.

Answer 1

Step-by-step explanation:

Suppose the borrowing rate r_B = 10\%r B =10% compounded annually. However, the lending rate (or equivalently, the interest rate on deposits) is only 8\%8% compounded annually. Compute the difference between the upper and lower bounds on the price of an perpetuity that pays A=10,000$ per year. Please submit your answer rounded to the nearest dollar so if your answer is 23,456.78923,456.789 then you should submit an answer of 2345723457.

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