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You are considering an investment of $200 now, that will result in income of $110 after 1 year, and income of $120 after 2 years.
You are considering an investment of $200 now, that will result in income of $110 after 1 year, and income of $120 after 2 years. You would like to analyze this possible investment to determine the internal rate of return. Let x_0, x_1, x_2 represent the cash flow stream relative to your wallet. Then x_0 = , x_1 = x_2 = In computing the present values of the cash flows, the discount factors are d(0, 0) = , d(0, 1) = . d(0, 2) = Express the discount factors in terms of r, the (as yet unknown) effective annual interest rate. Type r as r. The present values of the cash flows, are PV[x_0] = PV[x_1] = PV[x_2] = Type r as r. As a function of r, the net present value of the cash flow stream is NPV(x_0, x_1, x_2) = The internal rate of return of the cash flow stream is r_e =
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