A person has $ 100,000 annual income. The interest rate is 10%. This person is considering investment in a piece of land that costs now $70,000. At the same time this person wants to consume $60,000 this year.

A person has $ 100,000 annual income. The interest rate is 10%. This person is considering investment in a piece of land that costs now $70,000. At the same time this person wants to consume $60,000 this year.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 22P

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Concept explainers

Real Estate

Real estate means ownership of land along with the assets and natural resources that exist on the land. These properties are in real/physical form which is tangible. Real estate simply means land or addition made to land permanently like constructing a residence or different buildings. People invest in real estate to either reside or for wealth creation. Many people investing in real estate further lend the place for occupation or businesses in return for a monthly payment.

Question

a) Detail a plan of investment and borrowing or lending that would permit this person to consume 60,000 euro this year if the land investment is worth 75,000 euro next year.

b) Detail a plan of investment and borrowing or lending that would permit her to consume 60,000 euro this year if the land investment is worth 80,000 euro next year.

c) In which of these cases should a person invest in the land?

d) In each of these cases, how much will this person able to consume next year?

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