Final answer:
The internal rate of return (IRR) can be calculated using a financial calculator or software by setting the net present value to zero. The student should input the annual payments of $300 for 30 years and the final cash flow of $37,000 to find the IRR to two decimal places.
Step-by-step explanation:
The internal rate of return (IRR) on an investment can be found by setting the net present value of the cash flows to zero and solving for the discount rate that achieves this. The student's advisor has offered an investment with a cash flow of $37,000 after 30 years, with annual payments of $300. To calculate the IRR, one must equate the present value of outflows (premiums paid) to the present value of inflows (cash flow received).
The formula for the IRR when it comes to an annuity (regular payments) is more complex and usually requires either iterative methods or financial calculators to solve. Considering the information provided, the student should use a financial calculator or a software tool that has IRR calculation capabilities, inputting the annual payments ($300) for 30 years and the final cash flow ($37,000) to find the IRR, rounded to two decimal places.