Your broker is selling you an investment scheme in which you will receive $5,000 four years from now, $6,000 five years from now

Question

3 years ago

7

Your broker is selling you an investment scheme in which you will receive $5,000 four years from now, $6,000 five years from now

and $7,000 six years from now. The broker is asking you to pay $15,000 for this investment scheme. Your required rate of return is 12%. If you were to pay $15,000 for this scheme, what is the annual rate of return you would earn

Business

1 answer:

kvasek [131] · Answer 1 · 2022-10-18T03:59:49+03:00

Answer:

IRR = 3.64%

Explanation:

using a financial calculator or excel spreadsheet we can determine the IRR of this investment:

year 0 = -$15,000

year 1 = $0

year 2 = $0

year 3 = $0

year 4 = $5,000

year 5 = $6,000

year 6 = $7,000

IRR = 3.64%

Since your required rate of return is 12%, you should pay a maximum of $10,128.57