Pam promises to pay Sandy $4,000 in year 4 and another $6,000 in year 8 for a loan of $4,000 from Sandy today. What is the ROR that Sandy is getting? Assume interest is compounded monthly.
A) 14.75%
B) 16.72%
C) 15.39%
D) 18.08%

Question

Quizplus · Accepted Answer

To find the rate of return (ROR), we need to calculate the internal rate of return (IRR) for the cash flows. The cash flows are: -$4,000 today, $4,000 in year 4, and $6,000 in year 8. Using the IRR formula or a financial calculator, the IRR is approximately 15.39%.

Pam Promises to Pay Sandy $4,000 in Year 4 and Another