Question
(a) There is an investment scheme that works in this way. You invest $9000 now. The financial institution will pay you $1000 at the end
(a) There is an investment scheme that works in this way. You invest $9000 now. The financial institution will pay you $1000 at the end of each year, for 10 years in succession. The market interest rate is 3% p.a., assumed paid annually. By finding the sum of Present Values, or other methods, determine if the investment is profitable or not. (b) Find the Internal Rate of Return (IRR) r of this investment using Newtons method, i.e. the equivalent interest rate for this investment. Hint: Refer to Workbook Exercises, Week 3, Lesson 1, Q. 3 (b) (c) How does your result in (b) confirm with your conclusion in (a)?
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