The Milken Company is offering you an investment that promises you $10,000 at the end of 5 years if you invest $ 7,004 today

Finance Mar 08, 2021

The Milken Company is offering you an investment that promises you $10,000 at the end of 5 years if you invest $ 7,004 today. What is the annual return on this investment? (Compute your answer as a percent rounded to 2 decimal places. Record without a percent sign. For example, record .0848765 = 8.48765% as 8.49)Your Answer:

Expert Solution

Computation of Annual Return on the Investment:

Let rate of return be x%

At this rate;

Present Value of Inflows = $7779

$7004 = 10000/1.0x^5

1.0x=(10000/$7004)^(1/5)

1.0x=1.073818

x=1.073818-1

x = 0.073818 or 7.38%

Annual Return on the Investment is 7.38%

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