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You own the 1956 Bentley pictured to the right. The car cost you $45,000, but you...

You own the 1956 Bentley pictured to the right. The car cost you $45,000, but you need to sell it, and have it listed for $42,000. Your friend says he wants to buy it, but he can’t get a loan. He says that he can pay you $9,999 next year, $11,999 the following year, $9,999 in the year after that, and $11,999 in four years. If interest rates are about 2%, should you take the deal? Justify your answer.

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Answer #1
The deal can be accepted if the PV of the deferred
payments is more than or equal to $42,000, if discounted
at 2%.
= 9999/1.02+11999/1.02^2+9999/1.02^3+11999/1.02^4 = $     41,844
The PV is only marginally lower than the price of $42,000.
Hence, the deal can be taken.
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