An insurance firm agrees to pay you $3,310 at the end of 20 years if you pay a premium of $100 per year at the end of each 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 per year for 20 years and a future value of $3,310, the IRR is approximately 5%.

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