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An investor is considering investing in a 3-year project that involves the following expenditure and income: . The project requires an initial outlay of 28,000
An investor is considering investing in a 3-year project that involves the following expenditure and income: . The project requires an initial outlay of 28,000 at the outset and further quarterly payments in arrears during the first year equal to 1,500 per annum. In return, the project is expected to provide the following net annual income payments, which are assumed to be received at the end of each year: Year 1 2 3 Net income 1,800 1,950 2,000 Finally, at the end of the third year, it is expected that the project will be sold to another investor for 31,600. (i) Calculate the annual effective yield, to the nearest 0.1%, earned by the investor on this project. [13 marks] (ii) Explain in words what the numerical answer to part (i) represents. [3 marks]
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