You can buy property today for $2.5 million and sell it in 4 years for $3.5 mill

Question

You can buy property today for $2.5 million and sell it in 4 years for $3.5 million. (You earn no rental income on the property.) a. If the interest rate is 8.75%, what is the present value of the sales price? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.) What is Present Value $______Million b. Is the property investment attractive to you? Yes or No c-1. What is the present value of the sales price, if you also could earn $150,000 per year rent on the property? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.) Present value $ million c-2. Is the property investment attractive to you? Yes or No

Explanation / Answer

A = P(1+r/100) ^n => A= 2.5 (1 + 8.75 /100)^4 => A = 3.4966 million = 3.496 million

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