Crystal wishes to buy a Worhal "Triplin painting.She expects to sell it to her friend, Ricardo,...

Crystal wishes to buy a Worhal "Triplin painting.She expects to sell it to her friend, Ricardo, 4 years from now for 5,000 Warhol art values are highly and thus risky. Crystal has a required rate of return of fifteen percent. What is the most she should bid for the painting at todays auction?

Solutions

Expert Solution

rate positively ..

Bid value today = present value of future cash flow
present value = Future value/(1+r)^t

FV=	5000
r=	15%
t=	4

Present vlaue =	$ 2,858.77
5000/(1+15%)^4

ans =	$ 2,858.77

jeff jeffy answered 2 years ago

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