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May 15th, 2014, 02:12 PM   #11
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IF we're to look at this as an investment of 20,000 now (time 0)
which went bad(!) by creating a loss of 26,000 1 year later, then
fortunately a gain of 13,000 2 years later, then we can calculate a rate:

-26000 / (1 + i) + 13000 / (1 + i)^2 = 20000
Simplifies to a quadratic:
20(1 + i)^2 + 26(1 + i) - 13 = 0
Solve to get 1 + i = .3855

So i = .3855 - 1 = -.6145 (negative, as expected...)
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