Jim sold a car and accepted a note promising cash flows of $1,000 at the end of Year 1, and $2,000 at the end of Years 2, 3 and 4 as his payment. What was the effective price he received for the car, assuming an interest rate of 8.30%? Your answer should be between 4,715.00 and 6,525.00, rounded to 2 decimal places, with no special characters.
Jim sold a car and accepted a note promising cash flows of $1,000 at the end of Year 1, and $2,000 at the end of Years 2, 3 and 4 as his payment. What was the effective price he received for the car, assuming an interest rate of 8.30%? Your answer should be between 4,715.00 and 6,525.00, rounded to 2 decimal places, with no special characters.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Jim sold a car and accepted a note promising cash flows of $1,000 at the end of Year 1, and $2,000 at the end of Years 2, 3,
and 4 as his payment. What was the effective price he received for the car, assuming an interest rate of 8.30%?
Your answer should be between 4,715.00 and 6,525.00, rounded to 2 decimal places, with no special
characters.
Expert Solution
Introduction,
The difference between the current value of cash inflows and outflow of cash over a period of time is known as net present value (NPV). The net present value (NPV) is a calculation used in capital budgeting and investment planning to determine the profitability of a proposed investment or project and any project or investment with a negative NPV should be avoided since it is based on a discount rate that may be determined from the cost of capital necessary to undertake the venture.
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