Question

An investment project that requires immediate costs of $200 generates revenues of $242 at the end of the first year. What is its annual internal rate of return …

(a) if the interest is compounded annually? i1 = ______________%

(b) if the interest is compounded twice a year? i2 = _______________%

(c) if the interest is compounded continuously? r = ln(______________)

B. Company’s share costs $100. In one next year it will pay a dividend of $10. The dividend will continue being paid yearly and it will grow by 5% per year (i.e. $10, $10.5, $11.025, …). What is the annual internal rate of return on this share?

Answer 1