An insurance firm agrees to pay you $3,310 at the end of 20 years if you pay premiums of $100 per year at the end of each year of the 20 years.Find the internal rate of return to the nearest whole percentage point.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the interest rate that makes the net present value (NPV) of the cash flows equal to zero. By calculating the IRR for the given cash flows, $100 paid annually for 20 years and $3,310 received at the end of 20 years, the IRR is approximately 5%.

An Insurance Firm Agrees to Pay You $3,310 at the End