Your brother, who is prone to bearing substantial risk, suggests that you buy a security for...
Your brother, who is prone to bearing substantial risk, suggests that you buy a security for $10,000 that promises to pay you $100,000 at the end of 15 years. What is the implied annual return or yield on this investment?
Homework Answers
Let the return be I% per year
t = 15 yrs
F = P *(1+I)^t
100000 = 10000 * (1+i)^15
(1+i)^15 = 100000 / 10000 = 10
(1+i) = 10 ^(1/15) = 1.1659144
I = 1.1659144 - 1 = 0.1659144 = 16.59%
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