1. Answer the following questions assuming the interest rate is 8 percent. Rate Of Return Problems

i. An investment of $1,300 today returns $61,000 in 50 years. What is the internal rate of return on this investment?

j. An investment costs $750,000 today and promises a single payment of $11.2 million in 23 years. What is the promised rate of return, IPR, on this investment?

k. What return do you earn if you pay $22,470 for a stream of $5,000 payments lasting 10 years? What does it mean if you pay less than $22,470 for the stream? More than $22,470?

l. An investment promises to double your money in five years. What is the promised IRR on the investment? m. The projected cash flows for an investment appear below. What is the investments IRR?

Year 0 1 2 3 4 5

Cash flow -$460 -28 75 160 280 190

n. In 1987, a Van Gough painting, Sunflowers (not reputed to be one of his best), sold at auction, net of flees, for $36 million. In 1889, 98 years earlier, the same painting sold for $125. Calculate the rate of return to the seller on this investment. What does this suggest about the merits of fine art as an investment?