7 years ago, Nick invested $7,000. Today his investment is worth $11,500. The internal rate of return on this investment is

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the annualized effective compound rate of return that equates the present value of all cash flows to zero. In this case, the present value of the investment is $7,000 and the future value is $11,500. The IRR can be calculated using the following formula:IRR = (FV / PV)^(1 / n) - 1where:FV = future valuePV = present valuen = number of yearsIn this case, the IRR is:IRR = (11,500 / 7,000)^(1 / 7) - 1= 0.0735= 7.35%Therefore, the correct answer is A) 7.35%.

7 Years Ago, Nick Invested $7,000