Multiple Choice
The internal rate of return (IRR) concept is best explained by which of the following?
19
views
7. Receivables and Investments
Introduction to Investments in Securities
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
If you purchase a bond for $1,000 that pays annual interest of $50 and will be redeemed at par ($1,000) after one year, what is the rate of return you would earn?
A
1%
B
0.5%
C
10%
D
5%
Verified step by step guidance1
Step 1: Understand the components of the bond investment. The bond is purchased for $1,000 (initial investment), pays annual interest of $50 (income), and will be redeemed at par ($1,000) after one year (final value).
Step 2: Recall the formula for calculating the rate of return: \( \text{Rate of Return} = \frac{\text{Income}}{\text{Initial Investment}} \times 100 \).
Step 3: Substitute the values into the formula. The income is $50 (annual interest), and the initial investment is $1,000.
Step 4: Perform the division \( \frac{50}{1000} \) to determine the proportion of the return relative to the initial investment.
Step 5: Multiply the result by 100 to express the rate of return as a percentage.
6:41mWatch next
Master Introduction to Cost Method Investments with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Introduction to Investments in Securities practice set
Problem sets built by lead tutorsExpert video explanations