A simple to state math problem from finance

I asked my colleagues at work as well as my Facebook wall the following question today. It led to quite an interesting discussion in both places!

Consider the following transaction:

(1) You hand me $100 today.
(2) One year from now I give you $100.
(3) One year after that I give you an additional $10.

That’s it – no further cash flows of any kind happen.

Question – no calculators or anything like that – what is your gut feeling about the annual return you’d be receiving in this transaction?

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: