Future value. A speculator has purchased land along the southern Oregon coast. He has taken a loan with the end-of-year payme

Question

3 years ago

8

Future value. A speculator has purchased land along the southern Oregon coast. He has taken a loan with the end-of-year payme

nts of $7 comma 000 for 8 years. The loan rate is 5 %. At the end of 8 years, he believes that he can sell the land for $50 comma 000 . If he is correct on the future price, did he make a wise investment?

Business

1 answer:

NemiM [27] · Answer 1 · 2022-07-26T05:38:11+03:00

Answer: Not a wise investment as Cost exceeds Receipts.

Explanation:

As the amount is a constant payment, it is an annuity and as it is in future we are looking for the future value of an annuity:

Future Value of Annuity = Annuity * [ ( 1 + rate ) ^ time period - 1] / rate

= 7,000 * [ ( 1 + 5%)⁸ - 1] / 5%

= $66,843.76

Speculator pays $66,843.76 for loan and sells for $50,000.

The speculator would be paying more for the loan than they will sell the land for so this is not a wise investment.

Future value. A speculator has purchased land along the southern Oregon coast. He has taken a loan with the​ end-of-year payme

Future value. A speculator has purchased land along the southern Oregon coast. He has taken a loan with the end-of-year payme