You would like to sell your car and your friend would like to buy it. Unfortunately, your friend cannot get a bank loan to buy the car, so he asks you to accept a payment plan. Your friend says that he will pay you $2,000 immediately and will make monthly payments of $400 each month for four years beginning in 30 days. Because your friends finances are strained, you decide that a risk adjusted interest rate of 15%/year is appropriate. You believe you can sell your car quickly on Craigs List for $18,000. Based on his offer, what is the value of your friend's offer? Should you accept his offer?Value of offer___________________ Sell? ________________

Assume that your friend convinces you that his finances are not as bad as you think, so you decide that 8%/year is a reasonable interest rate. What is value of his offer at that rate? Would you sell the car on those terms?Revised value of offer_________________ Sell?___________________

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