1. Phil Farmer just sold his farm to his nephew and financed it with the followi
ID: 2632667 • Letter: 1
Question
1. Phil Farmer just sold his farm to his nephew and financed it with the following terms. The nephew will pay Phil $750/acre each year for the next 25 years.
What I the equivalent sales price that Phil is receiving for his land, given in today
Explanation / Answer
1> PV=(A/r)*(1- (1/(1+r)^n)) where PV=Present Value, A=Annuity Amount, r=Rate of interest, n=number of years, Here A=750,r=0.06,n=25 9587.52 Equivalent Sales Price 9587.52 2> FV=P*((1+r/n)^(mn)) , where FV=Future Value, P =Principal, r = Rate of Interest , n=number of compounding in a year , m =maturity period in years , Here P=30000,r=0.05,n=12,m=5 38500.76 Amount with 0% interest 385000
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