Question

You are evaluating a project with the following cash flows.

Year	Cash Flow
0	-800
1	-125
3	900
5	1050

1. Find the project's internal rate of return. Round your answer to four decimals and enter it in decimal format (EX: .XXXX).

- Use the following to answer the next two questions.

Year	Returns
2014	-.06
2013	.11
2012	.15
2011	-.03
2010	.16

1) Find the average return for this stock. Round your final answer to four decimals and enter it in decimal format (EX: .XXXX).

5 points   

QUESTION 15

2) Find the standard deviation of the return series.

		.1036
		.093
		.0086
		.0107

Answer 1

		10%	15%	20%	21%	22%
Period	Cash Flow	Discountig Factor [1/(1.1^period)]	PV of cash flows (cash flow*discounting factor)	Discountig Factor [1/(1.15^period)]	PV of cash flows (cash flow*discounting factor)	Discountig Factor [1/(1.2^period)]	PV of cash flows (cash flow*discounting factor)	Discountig Factor [1/(1.21^period)]	PV of cash flows (cash flow*discounting factor)	Discountig Factor [1/(1.22^period)]	PV of cash flows (cash flow*discounting factor)
0	-800	1	-800	1	-800	1	-800	1	-800	1	-800
1	-125	0.9090909	-113.636364	0.8695652	-108.695652	0.8333333	-104.166667	0.8264463	-103.3058	0.8196721	-102.459
3	900	0.7513148	676.183321	0.6575162	591.7646092	0.5787037	520.8333333	0.5644739	508.02654	0.5507069	495.6362
5	1050	0.6209213	651.967389	0.4971767	522.0355721	0.4018776	421.9714506	0.3855433	404.82045	0.3699993	388.49922
		NPV =	414.514346	NPV =	205.1045291	NPV =	38.63811728	NPV =	9.5412058	NPV =	-18.3236

IRR is the rate of return at which NPV=0

Here, NPV@21% is positive and @22% is negative.

Therefore, IRR is between 21% and 22%

IRR = Rate at which positive NPV + [Positive NPV/(Positive NPV-Negative NPV)]

= 21% + [9.5412/(9.5412-(-18.3236)]

= 21% + [9.5412/27.8648]

= 21% + 0.3424% = 21.3424%

2)

		Return	D [Return-Average Return]	D^2 [D*D]
		-0.06	-0.126	0.0159
		0.11	0.044	0.0019
		0.15	0.084	0.0071
		-0.03	-0.096	0.0092
		0.16	0.094	0.0088
Average Return =Average of R(P)s	0.066	Sum of D^2	0.0429
			Variance =Sum of D^2/Number of Returns	0.0086
			Std deviation =sqrt(variance)	0.0926 = 0.093