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 5.5%? $$\begin{array} { c c c c c c }
& 0 & 1 & 2 & 3 & 4 \
\hline\text { CFs: } & \$ 0 & \$ 1,000 & \$ 2,000 & \$ 2,000 & \$ 2,000
\end{array}$$
?
A) $6,123
B) $6,062
C) $5,335
D) $5,214
E) $5,699

Question

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 5.5%? $$\begin{array} { c c c c c c } 
& 0 & 1 & 2 & 3 & 4 \
\hline\text { CFs: } & \$ 0 & \$ 1,000 & \$ 2,000 & \$ 2,000 & \$ 2,000
\end{array}$$
?
A) $6,123
B) $6,062
C) $5,335
D) $5,214
E) $5,699

Quizplus · Accepted Answer

The effective price received for the car is calculated by finding the present value of the cash flow stream at the given interest rate of 5.5%. This involves discounting each cash flow back to the present value using the formula PV = CF / (1 + r)^n, where CF is the cash flow, r is the interest rate, and n is the number of periods. Summing up the present values of all cash flows gives the total effective price received for the car.

You Sold a Car and Accepted a Note with the Following