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Homework answers / question archive / 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
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?
Computation of Rate of Return using Rate Function in Excel:
=rate(nper,pmt,-pv,fv)
Here,
Rate = Rate of Return = ?
Nper = 5 years
PMT = $90
PV = $900
FV = $1,000
Substituting the values in formula:
=rate(5,90,-900,1000)
Rate or Rate of Return = 11.76%
