60) a) You just spent $16,028 to invest in a tulip bulb farm. The investment is expected to return an annuity stream of payments, in which monthly payments will be received. The first payment is expected to be $67, and occurs one month from today. Subsequent annuity payments are expected to grow by 1.8% per month. Once the monthly payments begin, they are expected to continue forever. Given its riskiness, the expected return, E(r), on the investment is 8.4% when expressed as an EAR. Determine the IRR of the investment on an effective monthly return basis.

b)You seek to determine the IRR of a set of cash flows. Unfortunately, your laptop just crashed, and therefore you dont have access to Excels IRR command. Instead, youve decided to use linear interpolation to determine the IRR. The cash flows are as follows: Youll pay $1,421 today in order to take an ownership position in WaxIt Enterprises.

In return, you expect to receive the following cash flows:

• $791 5 years from today.
• $2,671 9 years from today.

Using an initial guess of 4% and a secondary guess of 15%, determine the annual IRR after one round of linear interpolation. (Do not report the IRR as supplied by Excels IRR command which will be counted as wrong). Make sure you use the two guesses as supplied (not some other guesses).