# you been drinking, Mr K ?!

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Posted by Denis Borris on September 20, 2002 at 22:21:31:

In Reply to: Re: internatl rate of return (IRR) posted by Subhotosh Khan on September 20, 2002 at 16:42:00:

:Shouldn't we have:
:81000(1+i)^3 = .67*(77000*(1+i)^2+77000*(1+i)+35000)
:If that is true then I get 1+i = 1.2989
:or IIR = 29.89%

: : Shouldn't we have:
: : 81(1+i)^3 = 60.5*(1+i)^2+60.5*(1+i)+32.36
: : If that is true then I get 1+i = 1.4513
: : or IIR = 45.13%

To start, why 2 answers ? :) Maybe the good Doctor forged one of them?

Anyhow, 29.89% and 45.13% is (in my books) way too high;
not sure what you're doing: are you working it out as a PRE-TAX percentage?
If so, then it would be understandable.

I am confident my answer gives the exact "take-home-pay" rate (example):
Initial deposit : \$5000
interest 1 year later: \$500 : \$5500
income tax on interest: \$200 : \$5300

The "actual yield" to the depositor is 6% (not 10%) : that's the way I did mine..
The "before tax" interest income is 10%

Of course, the interest cost to the BANK who pays out \$500 is 10%.

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