Mike wanted to buy a bike, and he found one he liked at $20, so he bought it. The next day, a friend saw it and offered $30 dollars for it so Mike agreed. He later bought it back for $40. Again someone saw it and offered $50 and again Mike sold it. Mike finally rebought the bike for good for $60. Mike then took it to a bike show where a man told him the bike was worth $40.

Deciding to keep it, did Mike gain or lose money on the transactions? Count the bikes worth in the problem.

Easiest way to do this is cash flow for Mike and see how that compares to the $40.

Mike is out (20) when he pays for it, then sells it for 30, he's up +10, then he pays $40 for it, so he's out (30). Then he gets 50, so he's up +20. He then pays $60 for it, so he's out (40). The bike is worth 40, so he's at break even. No need to see what money he's out each time, just figure the net outflow of cash, i.e. $40, and there it is.

Posted by Lawrence on 2003-08-24 11:47:29