here’s one question that i don’t know how to do, please help me. thanks. Q: An investment is purchased for $25,000 and will pay the holder $5,000 per year in perpetuity. If the required rate of return is 15%, the money-weighted return for this investment is closet to: by using a financial calculator, BA II Plus to solve it, the anwer is given as: CF 25000 +/- ENTER « 5000 ENTER « 500 ENTER IRR CPT i just wonder how they get the 500 from? thanks people. 
Money-weighted return is the IRR.
-25000 + 5000/r = 0 solve for r 20% 500 years is being taken as a substitute for perpetuity
hi analiticar the choices to the question are: 1.) 33% 2.) 25% 3.) 20% 4.) 15% so according to the way i described in the question, the answer is 20% so i just wonder how they get the “500” from? cheers
cpk123 Wrote: ------------------------------------------------------- > -25000 + 5000/r = 0 > > solve for r > > 20% > > 500 years is being taken as a substitute for > perpetuity hi cpk123, thank you for answering it but why take 500 years as a substitute? can you please explain? cheers
500 years represent infinite time period… you can use 750 or 1000 or any other big number and will still get the same answer …
Why do I get Error 1 on my BAII Plus when I am trying to solve this? I do the following: CF0- -25,000, CO1 = 5,000 F01 - 500 cpt - irr - error 1. I am thinking whether my calculator is working fine…or i am doing something wrong… Please, help. Thanks
CPK, I think there is another way to solve it. For Perpetuity, NPV = Payment / interest rate So substituting, 25000 = 5000/ int rate => int rate = 5000/25000 = 20%
cfa_newyorker… Thats what I too was considering. CPK’s method will also give you a result… treat it as a work arround in case you forgot the formula.
kseniaru Wrote: ------------------------------------------------------- > Why do I get Error 1 on my BAII Plus when I am > trying to solve this? > I do the following: CF0- -25,000, CO1 = 5,000 F01 > - 500 cpt - irr - error 1. > I am thinking whether my calculator is working > fine…or i am doing something wrong… > Please, help. > Thanks Easier to use this way: PV = 25,000 PMT = -5,000 N= 500 (or 700, or 1000) I/Y = compute
THANKS!