You Are Offered a Chance to Buy an Asset for $7

question 23

Multiple Choice

You are offered a chance to buy an asset for $7, 250 that is expected to produce cash flows of $750 at the end of Year 1, $1, 000 at the end of Year 2, $850 at the end of Year 3, and $6, 250 at the end of Year 4.What rate of return would you earn if you bought this asset?

• A) 4.93%
• B) 5.19%
• C) 5.46%
• D) 5.75%
• E) 6.05%

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Definitions:

Property Use

The manner or purpose for which a property is used, subject to zoning laws and other regulations.

Escrow Account

A financial arrangement where a third party holds funds on behalf of transacting parties until specified conditions are met.

Neutral Third Party

An unbiased, independent individual or group engaged to help resolve disputes, negotiate agreements, or oversee transactions.

Deposit

A sum of money placed in an account or with a third party as a security for the performance of an obligation or the purchase of something.