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28 August, 21:29

Someone offers to sell to you a financial contract that will pay $90 at the end of each year for the next five years, plus an additional $1000 at the end of the fifth year. If they will sell the contract for $900, what rate of return are they offering on the investment?

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  1. 29 August, 01:14
    0
    11.76%

    Explanation:

    Present value of contract = $900

    Annual return = $90

    Additional sum = $1000

    Formula:

    PV of contract = annual return * PV annuity factor for 5 years at "x" rate + additional sum * PV factor for 5 years at x rate
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