You sold your motorcycle 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%

Year 0 1 2 3 4

Cashflows $0 $1,000 $2,000 $2,000 $2,000

a) $6, 600

b) $7, 277,

c) $5, 987,

d) $6, 930,

e) $6, 286

Question

Business

Adalynn Ibarra

1 October, 06:43

You sold your motorcycle 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%

Year 0 1 2 3 4

Cashflows $0 $1,000 $2,000 $2,000 $2,000

a) $6, 600

b) $7, 277,

c) $5, 987,

d) $6, 930,

e) $6, 286

+3

Answers (1)

Know the Answer?

Glenn Cruz · Answer 1

The Answer is C. $5,987

Explanation:

Present value = Cash flow / (1+r) ^n

where n is the number of years

r is the rate of return and it is 6%

Cash flow 0:

$0/1.06^0

=$0

Cash flow 1:

$1,000/1.06^1

=$943

Cash flow 2:

$2000/1.06^2

=$1,780

Cash flow 3::

$2,000/1.06^3

=$1,679

Cash flow 4:

$2,000/1.06^4

=$1,584

Present Value of all the cash flows is

$0 + $943 + $1,780 + $1,679+$1,584

=$5,987

You sold your motorcycle 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%Year 0 1 2 3 4Cashflows $0 $1,000 $2,000 $2,000 $2,000a) $6, 600b) $7, 277,c) $5, 987,d) $6, 930,e) $6, 286