Question

You purchase an asset today for $895. The assets gives the cash-flows shown below. Assuming the...

You purchase an asset today for $895. The assets gives the cash-flows shown below. Assuming the IRR stays constant, what is the percentage capital gain/loss from today to period 1 for this asset? ​ Time Period 0 1 2 3 Cash-Flow $100 $100 $100 $1000

3.22%

3.57%

3.39%

2.88%

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Homework Answers

Answer #1

Present Value of Cash Inflow =

  

Let the Rate be 11%

Present Value of Cash Inflow =

= 903.102445688

Let the Rate be 12%

Present Value of Cash Inflow =

= 875.701205224

IRR lies between 11% and 12%

IRR =

= 11% + ((903.102445688 - 895) / (903.102445688 - 895) + (895 - 875.701205224 )) * (12-11)

= 11% + (8.102445688 / (8.102445688) + (19.298794776)) * 1

= 11% + (8.102445688 / 27.401240464) * 1

= 11% + 0.29569630975

= 11.30%

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