Question

john is considering the purchase of a lot. he can buy the lot today and expects the price to rise to $15,000 at the end of 10 years. he believes that he should earn an investment yield of 10 percent annually on this investment. the asking price for the lot is $7,000. should he buy it? what is the annual yield (internal rate of return) of the investment if john purchases the property for $7,000 and is able to sell it 10 years later for $15,000?

Answer 1

The annual yield of the investment if John purchases the property is 15.50%.

What is the annual yield?

Annual yield is synonymous with the internal rate of return. Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested

IRR can be calculated with a financial calculator

Cash flow in year 0 = -7000

Cash flow each year from year 1 to 10 = investment yield x asking price : $7000 x .1 = 700

Cash flow in year 10 = $15,000

Internal rate of return = 15.50%

To learn more about IRR, please check: https://brainly.com/question/26484024

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