Explain what is meant by the internal rate of return (IRR) in the context of project praisal. What are the drawbacks of the IRR method? i) Discuss the pros and cons of the various numerical methods such as the bisection method, linear interpolation technique, the Newton-Raphson method and the secant method in determining the IRR. You should also clearly discuss any methods used in determining the initial iterate. ii) Suppose one estimates that they can afford to repay £1200 a month for 25 years on a mortgage. Interest is calculated at 4.3% p.a., payable monthly. How large a mortgage can the individual afford? How much would an investor pay now (beginning of the month) for an annuity, which pays £1,500 at the end of each month for 10 years, if the current interest rate is 12% p.a. compounded weekly? iii)
Explain what is meant by the internal rate of return (IRR) in the context of project praisal. What are the drawbacks of the IRR method? i) Discuss the pros and cons of the various numerical methods such as the bisection method, linear interpolation technique, the Newton-Raphson method and the secant method in determining the IRR. You should also clearly discuss any methods used in determining the initial iterate. ii) Suppose one estimates that they can afford to repay £1200 a month for 25 years on a mortgage. Interest is calculated at 4.3% p.a., payable monthly. How large a mortgage can the individual afford? How much would an investor pay now (beginning of the month) for an annuity, which pays £1,500 at the end of each month for 10 years, if the current interest rate is 12% p.a. compounded weekly? iii)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:b) Explain what is meant by the internal rate of return (IRR) in the context of project
appraisal. What are the drawbacks of the IRR method?
i) Discuss the pros and cons of the various numerical methods such as the
bisection method, linear interpolation technique, the Newton-Raphson method
and the secant method in determining the IRR. You should also clearly discuss
any methods used in determining the initial iterate.
ii)
Suppose one estimates that they can afford to repay £1200 a month for 25
years on a mortgage. Interest is calculated at 4.3% p.a., payable monthly.
How large a mortgage can the individual afford?
iii)
How much would an investor pay now (beginning of the month) for an
annuity, which pays £1,500 at the end of each month for 10 years, if the
current interest rate is 12% p.a. compounded weekly?
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