Suppose that annual income from a rental property is expected to start at P65,000 per year and decrease at a uniform amount of P2,500 each year after the first year for the 15-year expected life of the property. The investment cost is P400,000, and interest is 9% per year. Is this a good investment? Assume that the investment occurs at time zero (now) and that the annual income is first received at end of year one.

Suppose that annual income from a rental property is expected to start at P65,000 per year and decrease at a uniform amount of P2,500 each year after the first year for the 15-year expected life of the property. The investment cost is P400,000, and interest is 9% per year. Is this a good investment? Assume that the investment occurs at time zero (now) and that the annual income is first received at end of year one.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 15PROB

See similar textbooks

Similar questions

2. Assume that you purchase a property for $2,450,000 and it generates $195,000 per year of rental income and you sell it after 30 years for $2,975,000. What is your yield (annual rate of return) on this investment?
1. Assume that you purchase a property for $2,000,000 and it generates $25,000 per month of rental income and you sell it after 15 years for $3,275,000. What is your yield (monthly rate of return) on this investment?
Assume that at the beginning of the year, you purchase an investment for $7,200 that pays $100 annual income. Also assume the investment's value has decreased to $6,800 by the end of the year. (a) What is the rate of return for this investment? (Input the amount as a positive value. Enter your answer as a percent rounded to 2 decimal places.) Rate of return % (b) Is the rate of return a positive or negative number? Positive O Negative
Assume that at the beginning of the year, you purchase an investment for $6,300 that pays $130 annual income. Also assume the investment's value has increased to $6,900 by the end of the year. a. What is the rate of return for this investment? Note: Input the amount as a positive value. Enter your answer as a percent rounded to 2 decimal places. Rate of return % b. Is the rate of return a positive or a negative number? Positive Negative
Suppose you have an investment offer that guarantees an average investment gain of $1,000 per year. (a) What is the average rate of change (in dollars per year) of this investment? $? per year (b) If the value of the investment today is $10,000, what will be the value (in dollars) of the investment in 2 years? $?
Of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero. Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments). Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments). Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments). Investment D pays $2,500 at the end of 10 years (just one payment). Investment E pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).
1. This problem relates to Future Value, and Future income streams. Assume continuous compounding of interest. (a) Find the present value of a single future payment of FV = $50,000 to be made 20 years from now, assuming an interest rate of 5 percent. (b) Suppose you want a future income stream (annual payments) of FV (t) = 500t for 20 years. Find the present value of this income stream, assuming an interest rate of 5 percent.
Suppose you invest $3,000 today and receive $10,000 in 25 years. a. What is the internal rate of return (IRR) of this opportunity? b. Suppose another investment opportunity also requires $3,000 upfront, but pays an equal amount at the end of each year for the next 25 years. If this investment has the same IRR as the first one, what is the amount you will receive each year? a. What is the internal rate of return (IRR) of this opportunity? The IRR of this opportunity is%. (Round to two decimal places.) b. Suppose another investment opportunity also requires $3,000 upfront, but pays an equal amount at the end of each year for the next 25 years. If this investment has the same IRR as the first one, what is the amount you will receive each year? The periodic payment that gives the same IRR is $ (Round to the nearest cent.)
A. Assume that you have $7500 to invest. You plan to invest it for 10 years at a rate of 7% per year, compounded semiannually. What is the future value (FV) of this investment? B. Assume that you need to accumulate $25,000 by the end of 17 years. You can invest today at a rate of 12% per year, compounded quarterly. At that rate, how much must you invest today (PV) to accumu-late the $25,000? C. Assume that you have $5000 to invest today. At the end of 7 years, you need that $5000 to have grown to $10,000. If you invest at semiannual compounding, what annual rate must
An investment will pay $150 at the end of each of the next 3 years, $300 at the end of Year 4, $600 at the end of Year 5, and incur a $500 cost at the end of Year 6. If other investments of equal risk earn 6.7% annually, what is this investment’s present value?
If the current rate of interest is 5%, then the future value (FV) of an investment that pays $1,000 per year and lasts 15 years is closest to: A. $12,947 B. $25,895 C. $21,579 D. $30,211
Which of the following investments will have the highest future value atthe end of 10 years? Assume that the effective annual rate for allinvestments is the same. a. Investment E pays $250 at the end of every year for the next 10 years (a total of 10 payments). b. Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments). c. Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments). d. Investment D pays $2,500 at the end of 10 years (a total of one payment). e. Investment A pays $250 at the beginning of every year for the next10 years (a total of 10 payments).