interest rate for infinite periodic payment

[ifeoma]

how do I calculate interest rate for infinite but periodic payments? say I
received $1.2M but have to pay $60k every year, at what interest rate is this
possible?

 

[JLatham]

A true APR of 5% will give you a return of $60K on $1.2M per year. At the
end of the year you'll have 1,260,000, you pay out 60,000 and have the $1.2M
principal left in hand.

Relatively easy to figure out: 60K is what % of 1.2M, or in formula fashion:
=60000/1200000

 

[Stan Brown]

Sun, 2 Dec 2007 06:59:01 -0800 from ifeoma

how do I calculate interest rate for infinite but periodic
payments? say I received $1.2M but have to pay $60k every year, at
what interest rate is this possible?

If they are *literally* infinite, it means you never pay down the
loan, so every dollar is going into interest. (This would be quite
unusual.)

Your interest amount is then payment = rate * principal, and your
interest rate is rate = payment / principal.

 

[JLatham]

I'm thinking he may be dealing with something like a trust fund - attempting
to determine what interest rate he needs to achieve with a fixed amount to
permit the annual payout without digging into the principal.