Question

The following investment cash flows have been entered into cells B5 through B9 of an EXCEL spreadsheet. B5 $(5,200), B6 $2,100, B7 $1,300, B8 $1,800, B9 $1,200, where $(5,200) is the cost of the investment and the following amounts are cash flows at the end of years one through four. The correct function for computing the yield on this investment is

A. =ytm(B5, B6:19).
B. =irr(B5:39).
C. =irr(B6:B9)+B5.
D. =rate(4,0,- 5200, 1200).

Answer 1

The correct EXCEL function for computing the yield on the investment given the cash flows in cells B5 through B9 is =IRR(B5:B9), which calculates the internal rate of return.

Step-by-step explanation:

The correct function for computing the yield on an investment in Microsoft Excel, given the cash flows $(5,200) as the cost of the investment in cell B5 and the following cash flows in cells B6 through B9 ($2,100, $1,300, $1,800, and $1,200 respectively), is the IRR function. The cash flows represent the amounts at the end of years one through four. Therefore, the appropriate formula would be option B, which is =IRR(B5:B9), as it computes the internal rate of return for a series of cash flows represented by numbers in the cells B5 through B9.