You are offered a chance to buy an asset for $4,500 that is expected to produce

Question

You are offered a chance to buy an asset for $4,500 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $4,150 at the end of Year 4. What rate of return would you earn if you bought this asset? Your answer should be between 5.08 and 22.-8, rounded to 2 decimal places, with no special characters. Question 16 5 pts What's the present value of $11.500 discounted back 5 years if the appropriate interest rate is 5.1%, compounded semiannually? Your answer should be between 8032.00 and 9554.00, rounded to 2 decimal places with no special characters.

Explanation / Answer

Required - 1

For this question, we have compute the IRR ( Internal rate of return )

750 / (1+r) + 1000 / (1+r)2 + 850 / (1 + r)3 + 4150 / (1+r)4 = 4500

We have use the trail and error technique to find the value of " r " that satisfies the above equation.

Thus we find ........ r = 14 ........... is the required rate of return ( Don't enter % symbol)

OR

Use, excel ............. and enter the data A1, A2,A3,A4 and A5 as ... - 4500, 750, 1000, 850 and 4150

and then enter the formula ........ " =IRR(A1:A5) .......... this will the value for 14

Required - 2

Present value = 11500 / (1.0255)10 = 11500 / 1.28634258 = 8940

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