CFA® Level 1: Internal Rate of Return Calculation

Internal Rate of Return

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Question

What is the annual Internal Rate of Return of this series of annual cash flows: Year 0: <$6,000>, Year 1: $4,000, Year 2: $3,000, Year 3: $2,000, Year 4: $1,000

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

Answers

Explanations

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A. B. C. D. E.

Explanation

On the BAII Plus, press CF 2nd CLRWork 6000 +/- ENTER DownArrow 4000 ENTER DownArrow DownArrow 3000 ENTER DownArrow DownArrow 2000

ENTER DownArrow DownArrow 1000 ENTER DownArrow DownArrow 2nd Quit. Then press Irr CPT. On the HP12C, press these keys: 6000 CHS BlueShift CFo

4000 BlueShift CFj 3000 BlueShift CFj 2000 BlueShift CFj 1000 BlueShift CFj. Then press YellowShift Irr. The "DownArrow" represents the downward-pointing arrow on the top row of the BAII Plus keyboard. Make sure that the BAII Plus has the P/Y value set to 1.

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