Internal Rate of Return

question 71

Multiple Choice

Internal rate of return:

• A) Is used for short term decisions
• B) Does not incorporate the time value of money
• C) Calculates the net present value of a project
• D) Calculates the return at which the net present value is zero

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Definitions:

Investment 1

The strategy of apportioning capital with the expectation of generating financial returns.

Compounded Quarterly

Describes the frequency with which interest is added to the principal balance of a loan or deposit four times a year, increasing the total amount of interest earned or paid.

Maturity Value

The amount payable to the investor at the end of a fixed-term investment, including both the principal and the interest.

Compounded Semi-Annually

This refers to the process of calculating interest on the initial principal and the accumulated interest over two periods within a year.