# Understanding internal rate of return A one period…

*Question*: Understanding internal rate of return A one period…

Understanding internal rate of return

A one period investment requires an outlay of 100 today and will generate $120 a year later. The required rate of return for the investment is 10%.

(a) What is the cashflow in year 0?

(b) what is the cashflow in year 1?

(c) what is the discount rate?

(1) What is the NPV for the investment?

(2) What is the internal rate of return for the investment?

(3) Comments on the difference between the required rate of return and internal rate of return?

*Solve all ?? squares*

Year | Cashflow | |

(a) | 0 | ?? |

(b) | 1 | ?? |

(c) | Discount rate | ?? |

(1) | NPV | ?? |

(2) | IRR | ?? |

(3) | Comment | ?? |