Page 385 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Answers

Example 2.9

Answer = 10.25%

Cash Flows

Year 0 $97.00

Year 1 – 4 $8
Year 4 $105.00

Discounting

Year Cash flow Disc factor Present Disc factor Present
@ 5% value @ 12% value

0 (97.00) 1 (97.00) 1 (97.00)

1 – 4 8 3.546 28.37 3.037 24.30

3 105 0.823 86.42 0.636 66.78

Total +17.79 –5.92

Yield to maturity

17.79
IRR = 5% + × (12% – 5%) = 10.25%
(17.79 + 5.92)

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