Question

Calculate the APR of the following investment, entered as a

percentage (Example: if your answer is 14.5%, enter 14.5 and not
0.145) Year Number Cashflow 0 -11000 1 3000 2 3500 3 2900 4
2800

Answer 1

The APR of the investment is approximately 8.49%.

Step-by-step explanation:

The Annual Percentage Rate (APR) is a measure of the annualized interest rate that takes into account the fees or costs associated with a loan or investment. To calculate the APR for the given investment, we need to determine the interest rate that will equate the present value of the cash flows to the initial investment.

Step 1: Calculate the present value of the cash flows using the formula:

PV = CF1/(1+r)1 + CF2/(1+r)2 + CF3/(1+r)3 +...+ CFn/(1+r)n

where PV is the present value, CFi is the cash flow in year i, r is the interest rate, and n is the number of years.

Substituting the given values:

• CF1 = -11,000
• CF2 = 3,000
• CF3 = 3,500
• CF4 = 2,900
• CF5 = 28,800

We have:

-11,000/(1+r) + 3,000/(1+r)2 + 3,500/(1+r)3 + 2,900/(1+r)4 + 42,800/(1+r)5

Step 2: Solve for r by setting the present value equal to the initial investment:

-11,000/(1+r) + 3,000/(1+r)2 + 3,500/(1+r)3 + 2,900/(1+r)4 + 42,800/(1+r)5 = 0

By using numerical or graphical methods to solve this equation, we can find that the interest rate r is approximately 8.49%.