(Ignore income taxes in this problem. )You have deposited $5,188 in a special account that has a guaranteed interest rate.If you withdraw $1,400 at the end of each year for 7 years,you will completely exhaust the balance in the account.The guaranteed interest rate is closest to:
A)13%
B)27%
C)19%
D)89%

Question

Quizplus · Accepted Answer

PV = Cash flow F1F1F1S1F1F1F10 PV Factor
$5,188 = $1,400 F1F1F1S1F1F1F10 PV Factor
PV Factor = $5,188 F1F1F1S1F1F1F10 $1,400
= 3.706
The factor of 3.706 for 7 years represents an internal rate of return of 19%.

(Ignore Income Taxes in This Problem