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Consider an initial investment with a return in each of the subsequent 2 years. Thus, if you invest now, you will get the first payment
Consider an initial investment with a return in each of the subsequent 2 years. Thus, if you invest now, you will get the first payment in 1 year and the second payment in the 2nd year. The present value is a frac(b,1 r) frac(c,sup(bracket(1 r),2)), where a is the initial investment, b is the first payment, c is the final payment, and r is the interest rate. To find the internal rate of return, you need to find the value of r, which makes this 0. If you multiply through by sup(bracket(1 r),2) and simplify, you can see that you get a quadratic in r. Which of the following represents a solution for r? Assume that a<0andb,c>0. frac(-2a-b sqrt(sup(b,2)-4ac),2a) frac(2a-b-sqrt(sup(bracket(b 1),2)-4ac),2a) frac(2a-b sqrt(sup(bracket(b 1),2)-4ac),2a) frac(-b sqrt(sup(b,2)-4ac),2a)
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