Sree’s bakery has a present market value of $80,000 and his bakery’s value is increasing at a fixed rate of 20% per annum (EAR). Sree wants to sell his bakery to buy a piece of land from his brother at a price of $320,000. (His brother promised not to increase the price in future). Calculate the time (in years) when Sree can buy the land. (ii) On one diagram, sketch the value of Sree’s bakery over time and the value of the land. On this diagram, show the point (i.e. the year) where the land can be purchased, as calculated in part 3(a)(i). (b) Suppose Sree wants to invest some money in a long-term deposit that grows at a fixed rate of 5% per annum for his daughter’s future college education expenditure. After some research Sree realises, he needs $70,000 in 10 years’ time. Calculate the amount of money that Sree needs to invest today.
Mortgages
A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.
Mortgage
The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.
(a) (i) Sree’s bakery has a present market value of $80,000 and his bakery’s value is increasing at a fixed rate of 20% per annum (EAR). Sree wants to sell his bakery to buy a piece of land from his brother at a price of $320,000. (His brother promised not to increase the price in future). Calculate the time (in years) when Sree can buy the land.
(ii) On one diagram, sketch the value of Sree’s bakery over time and the value of the land. On this diagram, show the point (i.e. the year) where the land can be purchased, as calculated in part 3(a)(i).
(b) Suppose Sree wants to invest some money in a long-term deposit that grows at a fixed rate of 5% per annum for his daughter’s future college education expenditure. After some research Sree realises, he needs $70,000 in 10 years’ time. Calculate the amount of money that Sree needs to invest today.
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