Question

1. A deposit of $100,000 is made to an investment account today. At the end of each of the next four years, $5000 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

Answer 1

Answer: 5%

Explanation:

Use an Excel worksheet to determine the internal rate of return:

Investment or Cost = $100,000. This will be negative in the computation.

Cashflow = $5,000 per year

Fourth year cashflow = 5,000 + liquidation value = $105,000

IRR = 5%