You have made an investment of $250 that will yield a profit of $30 in one year.If the interest rate is 11.5% is this a good investment?

Question

Quizplus · Accepted Answer

To determine if this is a good investment, we need to compare the internal rate of return (IRR) with the interest rate. The internal rate of return is the interest rate at which the present value of the investment's cash inflows equals the initial investment.

In this case, the initial investment is $250 and the profit after one year is $30. So the cash inflow is $30, making the total value of the investment after one year $280.

Using the formula for IRR, we find that the IRR for this investment is about 12.04%. Since the IRR is greater than the interest rate of 11.5%, this is a good investment. Therefore, the answer is A.

You Have Made an Investment of $250 That Will Yield