Apopular magazine offers a lifetime subscription for $1000. such a subscription may be given as a gift to an infant at birth (the parents can read it in those early years), or taken out by an individual for himself. normally, the magazine costs $64.50 per year. knowledgeable people say it probably will continue indefinitely at this $64.50 rate. what is the rate of return on a life subscription purchased for an infant

rate of return on lifetime subscription purchase is 6.89 %

Explanation:

given data

lifetime subscription = $1000

magazine costs = $64.50 per year

to find out

rate of return on a life subscription purchased

solution

we know that rate of return is obtain by  the equation

the present value $64.5 for infinite years to 1000

so

1000 = 64.5 + + + +  ................ ∞ +

and

r =

so by using geometric series for the infinity term

1000 =

r = 0.9355

so r =

0.9355 =

i = 6.89 %

so rate of return on lifetime subscription purchase is 6.89 %