Suppose that you purchased an investment for $100,000 that paid you the following dividends for a period of one full year:
$6,500 for 4 months
$5,500 for 3 months
-$1,100 for 2 months(loss)
$7,750 for 1 month
$8,800 for 1 month
$110,000 for 1 month (principal plus dividend)
What was the overall return on your investment for 1 full year? Thanks for any help.
This is a very easy and very common form of an investment. To find the yield, you have to find an interest rate that will equate the PV of all the cash flows to the initial investment of $100,000. After a few iteration, it will be found that the IRR on this investment is about 5.58% compounded monthly.
