You Sold a Car and Accepted a Note with the Following

question 132

Multiple Choice

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

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Definitions:

Revolving Credit

A credit facility that allows a company or individual to borrow up to a pre-approved limit, pay it back, and borrow again.

Commitment Fee

A fee charged by a lender to a borrower for an unused credit line or undisbursed loan.

Commercial Paper

An unsecured, short-term debt instrument issued by corporations to finance their immediate operating expenses, inventory, and other short-term liabilities.

Maturity

The date on which the principal of a debt is due. Also the time from the present until that date.