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    Determining the rate of return on the given investment

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    An investment costs $500 and is expected to produce cash flows of $50 at the end of year 1, $60 at the end of year 2, $70 at the end of year 3, and $516 at the end of year 4. What rate of return would you earn if you bought this investment?

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    Solution Preview

    Please refer attached file for better understanding of formulas in MS Excel.

    Let us analyze cash flows associated with the investments
    Year Cash flow
    0 -500
    1 50
    2 60
    3 70
    4 516

    You can use IRR function in MS Excel ...

    Solution Summary

    Solution determines the rate of return on the given investment.