Internal Rate of Return Calculation for Cash Flows | CFA Level 1 Exam Prep

Internal Rate of Return Calculation

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Question

What is the annual Internal Rate of Return of this series of annual cash flows: Year 0: <$15,000>, Year 1: $8,000, Year 2: $8,000, Year 3: $1,000, Year 4: $4,000

(Note that the <> are used to indicate a negative number).

Answers

A. 16.61%

B. 17.12%

C. 18.83%

D. 15.55%

E. 13.74% C

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Explanations

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A. B. C. D. E.

Explanation

On the BAII Plus, press CF 2nd CLRWork 15000 +/- ENTER DownArrow 8000 ENTER DownArrow DownArrow 8000 ENTER DownArrow DownArrow 1000

ENTER DownArrow DownArrow 4000 ENTER DownArrow DownArrow 2nd Quit. Then press Irr CPT. On the HP12C, press these keys: 15000 CHS BlueShift CFo

8000 BlueShift CFj 8000 BlueShift CFj 1000 BlueShift CFj 4000 BlueShift CFj. Then press YellowShift Irr. The "DownArrow" represents the downward-pointing arrow on the top row of the BAII Plus keyboard. Make sure the BAII Plus has the P/Y value set to 1.

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