Sara Holliday must earn a return of 7 % on an investment that requires an initial...
Sara Holliday must earn a return of 7 % on an investment that requires an initial outlay of $2,400 and promises to return $6,200 in 11 years.
a. Use present-value techniques to estimate the yield on this investment.
b. On the basis of your finding in part a , should Sara make the proposed investment? Explain.
a. The yield on this investment is
Homework Answers
a) PV = FV/(1+r)11
Yield on this investment (r) = (FV/PV)1/11-1 =
9.01%
b)Yes Sara must make the proposed investment since yield of 9.01%
is greater than 7%
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