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Someone offers to sell to you a financial contract that will pay $90 at the end of each year for the next five years, plus an additional $1000 at the end of the fifth year. If they will sell the contract for $900, what rate of return are they offering on the investment?

Respuesta :

rehman851

Answer:

11.76%

Explanation:

Present value of contract = $900

Annual return = $90

Additional sum = $1000

Formula:

PV of contract = annual return * PV annuity factor for 5 years at "x" rate + additional sum * PV factor for 5 years at x rate

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