You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective price you received for the car assuming an interest rate of 6.0%? Years: 0 1 2 3 4 | | | | | CFs: $0 $1,000 $2,000 $2,000 $2,000
A) $5,987
B) $6,286
C) $6,600
D) $6,930
E) $7,277

Question

Quizplus · Accepted Answer

The present value of the cash flows is $5,987. This is calculated as follows:PV = $1,000/(1+0.06)^1 + $2,000/(1+0.06)^2 + $2,000/(1+0.06)^3 + $2,000/(1+0.06)^4PV = $1,000/1.06 + $2,000/1.1236 + $2,000/1.1910 + $2,000/1.2625PV = $943.40 + $1,779.22 + $1,683.93 + $1,584.45PV = $5,987

You Sold a Car and Accepted a Note with the Following