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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 Summary

Solution determines the rate of return on the given investment.

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

Solution:
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 provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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