You are considering investing in Property B in question 4. Consider now that the listing price of the property is $11 million. You know that the historical annual returns on this type of property has been 10%, and the historical risk premium on this type of property has been 5.5%. The prices of zero coupon Treasury Bonds are as follows: Prices of zero coupon treasury bonds (denomination 1 2 3 4 5 $971 $934 $889 $839 $784 How much is the property worth? Is this a positive NPV investment?¹ Maturity (yr) Price = $1,000) 8 6 7 $725 $665 $604 9 10 $544 $485
You are considering investing in Property B in question 4. Consider now that the listing price of the property is $11 million. You know that the historical annual returns on this type of property has been 10%, and the historical risk premium on this type of property has been 5.5%. The prices of zero coupon Treasury Bonds are as follows: Prices of zero coupon treasury bonds (denomination 1 2 3 4 5 $971 $934 $889 $839 $784 How much is the property worth? Is this a positive NPV investment?¹ Maturity (yr) Price = $1,000) 8 6 7 $725 $665 $604 9 10 $544 $485
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Annual net cash flow projections for two properties ($ millions)
1
2
3
4
6
8
A $1.0000 $1.0050 $1.0100 $1.0151
B $1.0000 $1.0200 $1.0404 $1.0612
5
7
9
$1.0202 $1.0253 $1.0304 $1.0355 $1.0407
$1.0824 $1.1041 $1.1262 $1.1487 $1.1717
10
$12.7252
$14.7395
Transcribed Image Text:Question 4
You are considering investing in Property B in question 4. Consider now that the listing price
of the property is $11 million. You know that the historical annual returns on this type of
property has been 10%, and the historical risk premium on this type of property has been
5.5%. The prices of zero coupon Treasury Bonds are as follows:
$1,000)
8
9
10
$604 $544 $485
Prices of zero coupon treasury bonds (denomination
2 3
1
4
5
6
7
Maturity (yr)
Price
$971 $934 $889 $839 $784 $725 $665
How much is the property worth? Is this a positive NPV investment?¹
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