Suppose the Interest Rate Is 8

question 60

Multiple Choice

Suppose the interest rate is 8%.If a project requires an initial investment of $5,000 and returns $5,500 in a year,what is its internal rate of return?

• A) 2%
• B) 8%
• C) 10%
• D) 18%

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Definitions:

Future Value

The value of an existing asset at a future date based on an assumed rate of growth over time.

Compounded Annually

This term refers to the process of adding interest to the principal sum of a loan or deposit, or in other words, interest on interest, with the effects of compounding happening once per year.

Present Values

The value today of a future sum or series of cash payments, calculated using a particular rate of return, for the purpose of discounting and assessing investment options.

Discount Rate

The discount rate applied in the discounted cash flow (DCF) methodology to calculate the current value of anticipated cash flows, considering the time value of money and associated risks.