You are offered an investment that will pay you the cash flows shown in the table. The first cash flow occurs in one year. The cost of the investment is $1,086.59 (today). What is the return on the investment? $$\begin{array} { | c | c | }
\hline \text { Year } & \text { Cash Flow } \
\hline 1 & \$ 70 \
\hline 2 & \$ 70 \
\hline 3 & \$ 70 \
\hline 4 & \$ 70 \
\hline 5 & \$ 1,070 \
\hline
\end{array}$$

Question

You are offered an investment that will pay you the cash flows shown in the table. The first cash flow occurs in one year. The cost of the investment is $1,086.59 (today). What is the return on the investment? $$\begin{array} { | c | c | } 
\hline \text { Year } & \text { Cash Flow } \
\hline 1 & \$ 70 \
\hline 2 & \$ 70 \
\hline 3 & \$ 70 \
\hline 4 & \$ 70 \
\hline 5 & \$ 1,070 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The correct answer is A because the return on the investment is 5%. The total cash flow is $1,350 and the cost of the investment is $1,086.59, so the return on the investment is ($1,350 - $1,086.59) / $1,086.59 = 5%.

You Are Offered an Investment That Will Pay You the Cash