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Timothy invests $2400 at time 0. He receives $700 at the end of each year for the first 3 years. He also pays $1033 at time 4 and receives $860 at times 7 and 8. Compute the yield rate of his investment.

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adioabiola

The yield rate of Timothy's investment as decribed is; 14.52% per annum

According to the question;

  • Timothy invests $2400 at time 0.

The return on the investment after the first 3 years provided he receives $700 at the end of each year for the first 3 years.

  • After first 3 years; Return = 3 × $700 = $2100.

  • At year 4: He pays $1033 = -$1033

  • At year 7 and 8; He receives $860 each = $860 × 2 = $1,720

Therefore; the net yield on the investment after 8 years is;

$2100 - $1033 + $1,720 = $2,787

The net yield per year can then be evaluated as follows;

  • $2,787/8 = $348.375.

The yield rate of his investment is therefore the percentage yield per annum which is evaluated as follows;

  • = ($348.375/$2,400) × 100%

  • = 14.52% per annum.

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