I Sign a Contract That Guarantees Me an Immediate Payment

question 39

Multiple Choice

I sign a contract that guarantees me an immediate payment of $2 000, but then I have to invest $800 a year for ten years. At the end of the tenth year I get a further payment of $8 000. If I can invest money at 10% interest, what is my approximate external rate of return on the contract?

• A)about 9%
• B)about 10%
• C)about 11%
• D)about 12%
• E)There are two solutions, about 8% and about 12%.