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

question 33

Multiple Choice

Suppose the cash flows for a financial asset's payment for years 1 through 5 are $80. That is, CFt = $80 for t (t = 1, ... ,5) . Further assume the the discount rate is 8.00% and at the end of the five years that the financial asset will pay back $1,000 in addition to the $80. Finally, assume a broker's commission of $30 is imposed by brokers to buy or sell the financial asset and that a government entity imposes a transfer tax of $20 on each transaction. To the nearest dollar, what is the correct price for this financial asset?

• A) $912
• B) $914
• C) $916
• D) $918

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Definitions:

Barbie's Preferences

A hypothetical concept referring to the assumed tastes or choices that the iconic doll character "Barbie" might have, based on her lifestyle and marketed products.

Good 1

A term used in economic models to represent the first of multiple goods considered in analysis, often with unspecified characteristics.

Price Elasticity

The degree to which the demand for an item is affected by fluctuations in its cost.

Demand Function

A mathematical representation of how the quantity demanded of a good is influenced by its price and other factors.