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An outlay of 5000 returning a single 8000 after 4 years has an internal rate of return nearest

  • A.10 per cent
  • B.60 per cent
  • C.12.5 per cent
  • D.15 per cent

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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