You have just been elected into the "Society of Honorable Engineers". First-year dues are waived in honor of your election. Thus, your first-payment of $200 is due at the end of the year, and annual dues are expected to increase 3% annually. After 40 years of paying dues you become a life member and pay no more dues. Instead of paying annual dues, however, you can pay a one-time $2000 life membership fee. (a) Show the equation for determining the rate of return for buying a life membership. (b) What is the rate of return?
Finding Rate of Return:
Finding the rate of return in time value of money problems can be quite challenging. We usually either have to resort to a trial and error approach, or use a financial calculator.
Answer and Explanation:
We need to find the rate of return (or opportunity cost of capital) that makes the individual indifferent between paying the lifetime fee or paying...
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from Business 110: Business MathChapter 8 / Lesson 3
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