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You can buy property today for $2.2 million and sell it in 5 years for $3.2 million. (You earn no rental income on the property.) a. If the interest rate is 10%, what is the present value of the sales price?

Respuesta :

TomShelby

Answer:

PV of the sales price  $1,986,948.23

 

Explanation:

We will calcualte the present value of the sale price using the present value of a lump sum formula:

[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]  

Maturity 3,200,000

time                         5 years

rate         10% = 10/100 = 0.1

[tex]\frac{3200000}{(1 + 0.1)^{5} } = PV[/tex]  

PV        $1,986,948.2338  

This indicates the 3,200,000 in five years are equivalent to 1,986,948.23 dollars Thus, this investment is not profitable as the property will be purchased at 2,200,000

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