A local bank is running the following advertisement in the newspaper: "For just $ 1 comma 000 we will pay you $ 100 forever!" The fine print in the ad says that for a $ 1 comma 000 deposit, the bank will pay $ 100 every year in perpetuity, starting one year after the deposit is made. What interest rate is the bank advertising (what is the rate of return of this investment) ?

Rate of return of this investment=10%

Explanation:

The interest rate/rate of return can be described as the rate at which a given investment increases in value over fixed period in time, usually annually.

The rate of return can be calculated using the formula below;

Rate of return = (Current value-Original value) / Original value*100

where;

Original value=$1,000

Current value=Original value+Interest = (1,000+100) = 1,100

replacing;

Rate of return = (1,100-1,000) / 1,000=0.1*100=10%

Rate of return=10%