Discussion
An outlay of 5000 returning a single 8000 after 4 years has an internal rate of return nearest
Answer: C
Correct answer: 12.5 per cent
\[ 5000(1+i)^4 = 8000 \quad\Rightarrow\quad (1+i)^4 = 1.6 \quad\Rightarrow\quad 1+i = 1.6^{0.25} = 1.125, \] giving 12.5 per cent. A single future sum makes the internal rate a direct calculation with no trial and error, which is worth recognising when it occurs.
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