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?

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