An investor deposits $10,000 per year for 4 years, with the first deposit made 1
ID: 2632691 • Letter: A
Question
An investor deposits $10,000 per year for 4 years, with the first deposit made 1 year from the present. One year after the last deposit the investor makes the first withdrawal of $10,000. One year later the second withdrawal is 5% smaller than the first payment withdrawn. The third withdrawal one year later is 5% less than the second withdrawal. There are a total of 15 annual withdrawals, each being 5% less than the previous one.a. Find the effective annual IRR earned on this investment to the nearest percent.
b. If the dollars invested and withdrawn in part (a) are in actual dollars and the inflation rate for the 19-year time span of the investment is 9% per year, what is the inflation-free IRR earned on this investment? An investor deposits $10,000 per year for 4 years, with the first deposit made 1 year from the present. One year after the last deposit the investor makes the first withdrawal of $10,000. One year later the second withdrawal is 5% smaller than the first payment withdrawn. The third withdrawal one year later is 5% less than the second withdrawal. There are a total of 15 annual withdrawals, each being 5% less than the previous one.
a. Find the effective annual IRR earned on this investment to the nearest percent.
b. If the dollars invested and withdrawn in part (a) are in actual dollars and the inflation rate for the 19-year time span of the investment is 9% per year, what is the inflation-free IRR earned on this investment?
a. Find the effective annual IRR earned on this investment to the nearest percent.
b. If the dollars invested and withdrawn in part (a) are in actual dollars and the inflation rate for the 19-year time span of the investment is 9% per year, what is the inflation-free IRR earned on this investment? a. Find the effective annual IRR earned on this investment to the nearest percent.
b. If the dollars invested and withdrawn in part (a) are in actual dollars and the inflation rate for the 19-year time span of the investment is 9% per year, what is the inflation-free IRR earned on this investment?
Explanation / Answer
Year Deposit Discounted Rate@9% Withdrawal Discounted Rate@9% 1 10000 9174.31 2 10000 8416.80 3 10000 7721.83 4 10000 7084.25 5 10000.00 6499.31 6 9500.00 5664.54 7 9025.00 4936.98 8 8573.75 4302.88 9 8145.06 3750.21 10 7737.81 3268.53 11 7350.92 2848.72 12 6983.37 2482.83 13 6634.20 2163.94 14 6302.49 1886.00 15 5987.37 1643.76 16 5688.00 1432.64 17 5403.60 1248.63 18 5133.42 1088.25 19 4876.75 948.48 Total 40000.00 32397.20 107341.75 44165.70 IRR=((107341-40000)/40000)*100 168.35 IRR with inflation 9% =(44165.70-32397.20)/32397.20*100 36.33
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.