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Your father paid $10,000 (CF at t = 0) for an investment that promises to pay $750 at the end of each of the next 5 years, then an additional lump sum payment of $10,250 at the end of the 5th year. What is the expected rate of return on this investment?

Respuesta :

TomShelby

Answer:

Rate of Return = 40%

Explanation:

10,000 Investment

Cash returns:

+750

+750

+750

+750

+750+10,250

14,000 cash return

[tex]\frac{cash\:receipts - \: Investment }{Investment} \times \: 100 = Rate \: of \: Return[/tex]

[tex]\frac{14,000 - 10,000}{10,000} \times \: 100 = Rate \: of \: Return[/tex]

Rate of Return = 40%