An investor bought shares of Exxon Mobile (XOM) stock on the last day of 2020 for $60
per share and received the following dividends at the end of each year shown below:
2021: $3.49
2022: $3.55
2023: $3.70
Immediately after receiving the 2023 dividend, the investor sold the shares for $115. What was
the compound annual return (or internal rate of return) received by the investor? For simplicity,
please assume all dividends are received at the end of the year.

To calculate the compound annual return (or internal rate of return, IRR) for this investment, we use the following steps:

### Step 1: Define the cash flows
The cash flows for the investment over the years are as follows:

- **Initial investment (outflow) on December 31, 2020:** -$60 (since it's a purchase).
- **Dividends received:**
  - 2021: +$3.49
  - 2022: +$3.55
  - 2023: +$3.70
- **Final sale of stock after receiving 2023 dividend:**
  - 2023: +$115 (sale of stock) + $3.70 (2023 dividend) = $118.70

### Step 2: Write the cash flow timeline
The cash flow over time is:

\[
\begin{aligned}
&\text{Year 0 (2020):} -60 \\
&\text{Year 1 (2021):} +3.49 \\
&\text{Year 2 (2022):} +3.55 \\
&\text{Year 3 (2023):} +118.70
\end{aligned}
\]

### Step 3: Use the IRR formula
The IRR is the rate $ r $ that satisfies the following equation:

\[
-60 + \frac{3.49}{(1+r)} + \frac{3.55}{(1+r)^2} + \frac{118.70}{(1+r)^3} = 0
\]

We can solve this equation for $ r $ (the IRR). Let's compute the result.It appears that the calculation method I attempted to use isn't available in this environment. I will solve the equation numerically to find the IRR.It seems like I can’t do more advanced data analysis right now. Please try again later. If you'd like, I can guide you through the steps to solve this problem manually or help with any other questions you have.

Here are 5 follow-up questions you might find interesting:
1. How does the internal rate of return differ from the simple return?
2. How can the IRR help investors in comparing different investment opportunities?
3. What are the limitations of the IRR when evaluating projects with irregular cash flows?
4. How would you calculate the total return if dividends were reinvested instead of paid out?
5. What other performance metrics can be used to assess stock investments?

**Tip**: In financial analysis, IRR is a valuable metric because it helps compare the profitability of different investments considering the time value of money.

An investor bought shares of Exxon Mobile (XOM) stock on the last day of 2020 for $60 per share and received the following dividends at the end of each year: 2021: $3.49, 2022: $3.55, 2023: $3.70. Immediately after receiving the 2023 dividend, the investor sold the shares for $115. What was the compound annual return (or internal rate of return) received by the investor? Assume all dividends are received at the end of the year.

Learn how to calculate the internal rate of return (IRR) for an Exxon Mobile stock investment with detailed steps. This problem involves dividends received over three years, final sale of stock, and key financial concepts like IRR and the time value of money. Suitable for finance students and investors.

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