Question #4 You own a house on a plot of land. The land has a value of $150,000. Use of the house has a value to you. You believe that the first years benefit to you amounts to $8000. Assume that this is as though you get $8000 at the end of the first year. Thereafter the annual benefits diminish at 4% per year. Furthermore, assume that the house will have to be demolished in exactly 22 years. Assume that rates are 8% p.a. Assume the land value remains unchanged over time. a. What is the total value of the house and land? b. You enter into a contract to sell the house. The purchaser will take possession in exactly 6 years. The purchaser uses the same method of valuation as you have. However, you want payment today. What amount will the purchaser be willing to give you today?

Question #4 You own a house on a plot of land. The land has a value of $150,000. Use of the house has a value to you. You believe that the first years benefit to you amounts to $8000. Assume that this is as though you get $8000 at the end of the first year. Thereafter the annual benefits diminish at 4% per year. Furthermore, assume that the house will have to be demolished in exactly 22 years. Assume that rates are 8% p.a. Assume the land value remains unchanged over time. a. What is the total value of the house and land? b. You enter into a contract to sell the house. The purchaser will take possession in exactly 6 years. The purchaser uses the same method of valuation as you have. However, you want payment today. What amount will the purchaser be willing to give you today?

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

See similar textbooks

Similar questions

12. Marlon can purchase a company car for his real estate business for $30 000. Interest lost on the money used for the purchase is estimated at 6% per year, compounded quarterly. Alternatively, Marlon can lease the car for $4000 per year. a) Calculate the cost of keeping the car for five years, and then selling it for $12 000. Include the cost of lost interest on the money used for the purchase. b) Calculate the cost of leasing the car for five years. c) Which plan is a better deal for Marlon? How much more would he pay with the other plan?
3. You are interested in buying a piece of real estate property that could be worth $450,000 in five years. If your earning interest rate is 5%, how much would you be willing to pay for this property now?
C. Assume Ron and his wife Julie, two young professionals, just bought a house for $600,000. They made a $100,000 down payment and borrowed the remainder at 4.25% fixed interest compounded monthly for 30 years. What will be Ron and Julie's monthly house payment on this amortizing loan?
6. Suppose Deb and Rusty decided to rent an apartment instead of buying a house. Create a column that keeps track of the amount they will spend in rent every year for the next 20 years. Assume the rent is now $1000 a month and will increase by 3% each year.
Aa.6
If you borrow 96% of the $250,000 purchase price for the house you just purchased, at 6.5% for 30 years, how much will you ultimately pay for this home? $386,318.77 O $546,106.77 O $576,106.77 O $556,106.77
QUESTION 5 Jill buys a house for $100,000 with no mortgage. Jill's buying costs were 5% of the house price. Jill lives there for exactly 30 years and sells it. Suppose the price of Jill's house grows 4.5% per year (compounded annually) and selling expenses are 8% of the sales price. Suppose Jill's annual cost of ownership net of tax savings is exactly equal to the annual rent she would have paid to live in the same house. What is Jill's annual IRR from owning net of renting? O A. 4.33% O B. 4.50% OC. 4.04% OD.4.21%
Assume you paid cash for a beach house in Florida a while back and that you are now wanting to sell it. You have two offers for the house as follows: 1. $500,000 paid immediately (spot market sale) 2. $520,000 paid 1 year from now (Forward sale) Here is a list of the annual cost/income considerations: ● Property tax: $5,000 Insurance: $3,000 HOA dues: $4,000 Maintenance: $3,000 Rental Income: $35,000 What is the fair value forward price from your perspective? Opportunity cost of not receiving the 500K today is the money-market rate of 5% = $25,000 for 1 year ● $535,000 $540,000 $505,000 $495,000 $520,000
Compare the benefits and drawbacks to long-term vs. short-term leases from EITHER the point of view of the lessor or the lessee. REAL ESTATE FINANCE
Question 4 Jim and Nancy just got married today. They want to start saving so they can buy a house five years from today. The average house in their town today sells for $150,000. Housing prices are expected to increase 4.5 percent a year. When they buy their house five years from now, Jim and Nancy expect to get a 30-year (360-month) mortgage with a 7 percent nominal interest rate. They want the monthly payment on their mortgage to be $700 a month. Jim and Nancy want to buy an average house in their town. They are starting to save today for a down payment on the house. The down payment plus the mortgage will equal the expected price of the house. Their plan is to deposit $2,500 in a brokerage account today and then deposit a fixed amount at the end of each of the next five years. Assuming that the brokerage account has an annual return of 8 percent, how much do Jim and Nancy need to deposit at the end of each year in order to accomplish their goal?
None
Nikul

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS