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Nov 24, 2024
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[QUESTION]
[Problem 13.3]
The following are exercises on internal rates of return:
a. An investment of $1,000 today will return $2,000 at the end of 10 years. What is its internal
rate of return?
b. An investment of $1,000 will return $500 at the end of each of the next 3 years. What is its
internal rate of return?
c. An investment of $1,000 today will return $900 at the end of 1 year, $500 at the end of 2 years,
and $100 at the end of 3 years. What is its internal rate of return?
d. An investment of $1,000 will return $130 per year forever. What is its internal rate of return?
[ANSWER]
a.
7.18 percent
b.
23.38 percent
c.
33.18 percent
d.
IRR = $130/$1,000 = 13 percent (a perpetuity)
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