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17 October, 06:28

A pension fund is making an investment of $100,000 today and expects to receive $1,600 at the end of each month for the next five years. at the end of the fifth year, the capital investment of $100,000 will be returned. what is the internal rate of return compounded annually on this investment?

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  1. 17 October, 09:09
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    The answer is 14.4%

    Explanation:

    Calculations as follows:

    Total returns 1600*12*5=96,000

    Plus the capital investment of 100,000

    Total amount 100,000+96,000=196,000

    196,000=100,000 (1+r/100) ∧5

    196,000/100,000 = (1+r/100) ∧5

    5√1.96=1 + r/100

    5√1.96 - 1 = r/100

    1.1440-1 = r/100

    0.144 = r/100

    r = 14.4%
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