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Your clients own a dividend paying mutual fund that does not reinvest the dividends. They would...

Your clients own a dividend paying mutual fund that does not reinvest the dividends. They would like to know what the IRR is on the mutual fund. It paid $30 at the end of each quarter for the first 4 quarters and paid $25 at the end of each of the next 4 quarters. They originally invested $10,000 and it is currently worth $14,000.

Select one:

a. 18.1

b. 4.5%

c. 9.1%

d. 16.1%

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Answer #1

IRR can be calculated using the same function in excel or calculator

Insert CF0 = -10,000, CF1... CF4 = 30, CF5... CF7 = 25, CF8 = 25 + 14,000 = 14,025 on a calculator

=> Compute IRR = 4.54% (quarterly)

Annual IRR = 4.54% x 4 = 18.1%

Hence, a is correct.

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