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 for 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 rate at which the present value of the premiums paid equals the present value of the amount received. By calculating the IRR using the cash flows (-$100 for 20 years and $3,310 at the end), the IRR is approximately 5%.

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