Question

A deposit of $100,000 is made to an investment account today. At the end of each of the next four years, $10,000 must be paid out to a beneficiary, and the account liquidated at the end of year four. If the liquidation value is $100,000, the account has earned an annual internal rate of return of ___________%. (percent, rounded three places after the decimal)

Answer 1

Answer:

14.06%

Explanation:

Assume their is a cash out flow today of $100000, and next four year annual cash inflow of 10000 and 120000 at the end of year 4.

We can use IRR formula to find the interest rate.

year                            cashflow

0                                   -100000

1                                      10000

2                                     10000

3                                     10000

4                                     130000

IRR                                 14.06%

The calculation has been done on excel sheet