A mining property is offered for sale for 1:1 57,000

Economics Apr 02, 2021

A mining property is offered for sale for 1:1 57,000. On the basis of estimated production, an annual return of P 8,000 is foreseen for a period of 10 years. After 10 years the property will be worthless. What annual rate of return is in prospect?
k 6.4% C. 6.5% B. 6.6,6 D. 6.7%

Expert Solution

Answer

D .

Explanation

Computation of Annual Return using Rate Function in Excel:

=rate(nper,pmt,-pv,fv)

Here,

Rate = Annual Return = ?

Nper = 10 years

PMT = 8,000

PV = 57,000

FV = 0

Substituting the values in formula:

=rate(10,8000,-57000,0)

Rate or Annual Return = 6.69% or 6.7%

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