Question

If a person invests $100,000 now and receives $4,000 per quarter for 10 years, the nominal rate of return per year is nearest to:

Answer 1

With the present amount invested, P, the value received for n pay-out periods is calculated through the equation,

P = A x (1 - (1/(1 + r)^n)) / r)

Substituting the known values,
100,000 = (4,000)(1 - (1/(1 + r)^40)) / r)

The value of r from the equation is 0.3999 or 0.4. Hence, the nominal rate per year is equal to 1.6.