Final answer:
The local bank's offer is an example of a perpetuity. To find the annual interest rate, divide the annual payment by the principal. The correct answer is 0.57% (option d).
Step-by-step explanation:
The local bank's offer represents a case of a perpetuity, where a fixed payment is received indefinitely. The annual interest rate earned on a perpetual payment can be calculated by dividing the annual payment by the principal amount. Direct answer in 2 lines: The annual interest rate you will earn on your deposit is 0.57% (option d).
To determine the interest rate for a perpetuity, you use the formula interest rate = annual payment / principal. Given an annual payment of $200 and a principal deposit of $35,000, the interest rate is calculated as $200 / $35,000 = 0.0057, or 0.57% when expressed as a percentage.
This type of investment is commonly seen in endowments or trusts where the principle remains untouched, and only the interest income is utilized. It is important to note that this kind of offer assumes that the bank can afford to pay out this interest forever, which may not be practical in real-world scenarios. The question essentially asks to find the yield, which differs from interest rates involving compound interest where the amount invested grows over time.