Suppose the cash flows for a financial asset's payment for years 1 through 4 are $100. That is, CFt = $100 for t (t = 1, ... ,4). Further assume the the discount rate is 8.00% and at the end of four years that the financial asset will pay $1,000 in addition to the $100. Finally, assume a broker's commission of $30 is imposed by brokers to buy or sell the bond. To the nearest dollar, what is the correct price for this financial asset?

Question

Quizplus · Accepted Answer

The correct price for this financial asset is $1,014. This is because the present value of the cash flows is $1,000, and the broker's commission is $30. Therefore, the correct price is $1,000 + $30 = $1,014.

Suppose the Cash Flows for a Financial Asset's Payment for Years