# Question

Elliott Dumack must earn a minimum rate of return of 11% to be adequately compensated for the risk of the following investment.

Initial Investment $14,000

End of Year Income ($)

1 .......... 6,000

2 .......... 3,000

3 .......... 5,000

4 .......... 2,000

5 .......... 1,000

a. Use present value techniques to estimate the yield on this investment.

b. On the basis of your finding in part a, should Elliott make the proposed investment? Explain.

Initial Investment $14,000

End of Year Income ($)

1 .......... 6,000

2 .......... 3,000

3 .......... 5,000

4 .......... 2,000

5 .......... 1,000

a. Use present value techniques to estimate the yield on this investment.

b. On the basis of your finding in part a, should Elliott make the proposed investment? Explain.

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