Nama : Khansa Diva Nur Aprilia

NIM : 19522332
Kelas : A (Senin, 09:30-12:00)

Assignment 6 Rate of Return (ROR)

1. Assume you borrow $50,000 at 10% per year interest and you agree to repay the loan in five
equal annual payments. What is the amount of the unrecovered balance immediately after
you make the third payment?
Answer :
P = 50,000
i = 10% per year
n = 5 years

Cashflow :
P = $50,000

i = 10%
n = 5 years
0 1 2 3 4 5

A A A A A
A = $13,190

Calculation :
Amount of each payment per year (A) = P (A/P, i, n)
= $50,000 (A/P, 10%, 5)
= $50,000 (0.2638)
= $13,190
Unrecovered balance after 3rd payment = PWR – PWE
= P (F/P, i, n) – A (F/A, i, n)
= $50,000 (F/P, 10%, 3) - $13,190 (F/A, 10%, 3)
= $50,000 (1.3310) - $13,190 (3.3100)
 = $66,550 – $43,658.9
= $22,891.10
Table with lender’s perspective:
Beginning Interest on Ending
Recovered
Year Unrecovered Unrecovered Cash Flow Unrecovered
Amount
Balance Balance Balance
0 $ - $ - $ -50.000,00 $ - $ -50.000,00
1 $ -50.000,00 $ 5.000,00 $ 13.190,00 $ 8.190,00 $ -41.810,00
2 $ -41.810,00 $ 4.181,00 $ 13.190,00 $ 9.009,00 $ -32.801,00
3 $ -32.801,00 $ 3.280,10 $ 13.190,00 $ 9.909,90 $ -22.891,10
4 $ -22.891,10 $ 2.289,11 $ 13.190,00 $ 10.900,89 $ -11.990,21
5 $ -11.990,21 $ 1.199,02 $ 13.190,00 $ 11.990,98 $ 0,77
Total $ 15.949,23 $ 50.000,77

So, the unrecovered balance immidiately after 3rd payment is $22,891.1.

2. Determine the Rate of return of this cash flow!

Answer :
P = $3000
F = $7000
A1 = $200
A2 = $90
n=8
i = ...?

Calculation:
Trial and Error Method
Outflow = Inflow
PWR – PWE = 0
-$3000 - $200 (P/A, i*, 3) - $90 (P/A, i*, 3) + $7000 (P/F, i*, 8) = 0
 Trial for 5%
-$3000 - $200 (P/A, 5%, 3) - $90 (P/A, 5%, 3) + $7000 (P/F, 5%, 8) = 0
-$3000 - $200 (2.7232) - $90 (2.7232) + $7000 (0.6768) = 0
-$3000 - $544.64 - $245.088 + $4737.6 = 0
$947.872 > 0
 Trial for 10%
-$3000 - $200 (P/A, 10%, 3) - $90 (P/A, 10%, 3) + $7000 (P/F, 10%, 8) = 0
-$3000 - $200 (2.4869) - $90 (2.4869) + $7000 (0.4665) = 0
-$3000 - $497.38 - $223.821 + $3265.5 = 0
-$455.701 < 0
Linearly interpolate between 5% and 10%:
Y1 5%
Y i*
Y2 10%

X1 $947.872
X 0
X2 -$455.701

Interpolate formula:
𝑌−𝑌1 𝑋−𝑋1
= 𝑋2−𝑋1
𝑌2−𝑌1
𝑖∗−5% 0−$947.872
= −$455.701−$947.872
10%−5%
𝑖∗−5% −$947.872
= −$1403.573
5%
−$947.872
𝑖 ∗ −5% = −$1403.573 (5%)

𝑖 ∗ −5% = $0.675327895(5%)
𝑖 ∗ −5% = 3.376%
𝑖 ∗= 3.376% + 5%
𝑖 ∗= 8.376%

So, the value of ROR of the investation with trial and error method is 8.376%.
3. Given the cash flow below, calculate the rate of return on the investment!

Answer :
P = $100
n = 5 years
i = ... ?
Cashflow :
$20 $30 $20 $40 $40

1 2 3 4 5
n=5
i=?

P = $100
Calculation:
Trial and Error Method
Outflow = Inflow
NPW  PWR – PWE = 0
-$100 + $20 (P/F, i*, 1) + $30 (P/F, i*, 2) + $20 (P/F, i*, 3) + $40 (P/F, i*, 4) + $40 (P/F,
i*, 5) = 0
 Trial for 12%

-$100 + $20 (P/F, 12%, 1) + $30 (P/F, 12%, 2) + $20 (P/F, 12%, 3) + $40 (P/F, 12%, 4)
+ $40 (P/F, 12%, 5) = 0

-$100 + $20 (0.8929) + $30 (0.7972) + $20 (0.7118) + $40 (0.6355) + $40 (0.5674) = 0

-$100 + $17.858 + $23.916 + $14.236 + $25.42 + $22.696 = 0

$4.126 > 0
 Trial for 15%
-$100 + $20 (P/F, 15%, 1) + $30 (P/F, 15%, 2) + $20 (P/F, 15%, 3) + $40 (P/F, 15%, 4)
+ $40 (P/F, 15%, 5) = 0
-$100 + $20 (0.8696) + $30 (0.7561) + $20 (0.6575) + $40 (0.5718) + $40 (0.4972) = 0
-$100 + $17.392 + $22.683 + $13.15 + $22.872 + $19.888 = 0
-$4.015 < 0
Linearly interpolate between 12% and 15%:
Y1 12%
Y i*
Y2 15%

X1 $4.126
X 0
X2 -$4.015

Interpolate formula:
𝑌−𝑌1 𝑋−𝑋1
= 𝑋2−𝑋1
𝑌2−𝑌1
𝑖∗−12% 0−$4.126
= −$4.015−$4.126
15%−12%
𝑖∗−12% −$4.126
= −$8.141
3%
−$4.126
𝑖 ∗ −12% = −$8.141 (3%)

𝑖 ∗ −12% = $0.506817344(3%)
𝑖 ∗ −12% = 1.520%
𝑖 ∗= 1.520% + 12%
𝑖 ∗= 13.520%

So, the value of ROR of the investation with trial and error method is 13,520%.
4. Given the cash flow below, calculate the rate of return on the investment!

Answer :
P = $125
n = 6 years
i = ...?
Cashflow:
P = $125

n=6
i=?
1 2 3 4 5 6

$10

$20
$30

$40
$50

$60
Calculation:
Trial and Error Method
Outflow = Inflow
NPW  PWR – PWE = 0
$125 - $10 (P/A, i*, 6) - $10 (P/G, i*, 6) = 0
 Trial for 12% :
 $125 - $10 (P/A, 12%, 6) - $10 (P/G, 12%, 6) = 0
$125 - $10 (4.1114) - $10 (8.9302) = 0
$125 - $41.114 - $89.302 = 0
-$5.416 < 0
 Trial for 15% :
$125 - $10 (P/A, 15%, 6) - $10 (P/G, 15%, 6) = 0
$125 - $10 (3.7845) - $10 (7.9368) = 0
$125 - $37.845 - $79.368 = 0
$7.787 > 0
Linearly interpolate between 12% and 15%:
Y1 15%
Y i*
Y2 12%

X1 $7.787
X 0
X2 -$5.416

Interpolate formula:
𝑌−𝑌1 𝑋−𝑋1
= 𝑋2−𝑋1
𝑌2−𝑌1
𝑖∗−15% 0−$7.787
= −$5.416−$7.787
12%−15%
𝑖∗−15% −$7.787
= −$13.203
−3%
−$7.787
𝑖 ∗ −15% = −$13.203 (−3%)

𝑖 ∗ −15% = $0.589790199(−3%)
𝑖 ∗ −15% = −1.769%
𝑖 ∗= −1.769% + 15%
𝑖 ∗= 13,231%

So, the value of ROR of the investation with trial and error method is 13,231%.