If a Security Pays $110 Next Year and $121 the Year

question 9

Multiple Choice

If a security pays $110 next year and $121 the year after that,what is its yield to maturity if it sells for $200?

• A)9 percent
• B)10 percent
• C)11 percent
• D)12 percent

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Definitions:

Cash Inflows

Money entering a business from various sources, including sales, financing, and investment income.

Cash Outflows

Expenditures or payments made by a business, leading to a decrease in cash assets, including operational costs, investments, and financing activities.

IRR

Internal Rate of Return; a financial metric used to estimate the profitability of potential investments, calculated as the rate of return that sets the net present value of all cash flows from a particular project equal to zero.

Equivalent Annual Annuity

A financial calculation used to compare projects with different lifespans, by converting their net present values into equal yearly payments.