MaryLou182
Dec 22, 2009, 01:52 PM
Investment now = £60,000.
Cash return at the end of year 10 = £120,000.
Calculate the Internal Rate of Return
ArcSine
Dec 22, 2009, 02:02 PM
120,000 \ = \ 60,000(1 + r)^{10}
Solve for r.
ArcSine
Dec 22, 2009, 02:13 PM
4 steps...
Divide both sides by 60K
Take the 10th root of both sides (you'll need a calculator which handles fractional roots, or Excel, or something similar)
That leaves you with (1 + r) on the RHS, so deduct "1" from both sides
Call it a day
Alternatively, just keep hitting the right-hand side of my initial equation with different values for r, trial-and-error style, until the result is close enough to 120K.