Early in 2013, Maria bought shares of MBA Inc. at $27.85 per share. She received the following dividends per share (end of year).
2013 $1.50
2014 $2.00
2015 $2.50
Immediately after receiving the the 2015 dividend, she sold the stock for $32.50 per share. Her internal rate of return on this investment was

Question

Quizplus · Accepted Answer

To calculate the internal rate of return, we need to find the NPV (Net Present Value) of the investment by using the following formula:

NPV = -Initial Investment + (Cash flow 1 / (1+r)^1) + (Cash flow 2 / (1+r)^2) + (Cash flow 3 / (1+r)^3) + ... + (Cash flow n / (1+r)^n)

Where r is the internal rate of return.

In this case, the initial investment was $27.85 per share, and there were three cash flows:

- Cash flow 1 = $1.50 per share received at the end of 2013 (1 year after the initial investment)
- Cash flow 2 = $2.00 per share received at the end of 2014 (2 years after the initial investment)
- Cash flow 3 = $2.50 per share received at the end of 2015 (3 years after the initial investment)

To simplify the calculation, we can use a financial calculator or spreadsheet function to find the internal rate of return directly. Using the NPV function in Excel, we can enter the following formula:

=IRR(-27.85, 1.5/(1+x), 2/(1+x)^2, 2.5/(1+x)^3, 32.5)

This calculates the internal rate of return as 11.99%.

Therefore, the answer is C: 11.99%.

Early in 2013, Maria Bought Shares of MBA Inc