Potterville Village wants to build a new entertainment complex, and issues a serial bond to be
paid over five years, receiving $905,000. The series of annual repayments (including both
interest and principal repayment at the end of each year) is as follows: $156,000; $157,000;
$245,000; $239,000; $287,000.
(A) Using the TIC approach in Finkler (pp. 227-228), use the IRR function in Excel to
calculate the effective interest rate of this stream of payments.
(B) Explain to the Potterville City Council why you are using the TIC approach, rather than
simply calculating a simple rate of return on this investment.