Question

The Hamptons Home of a Famed Socialite Hits the Market

“Before there was Paris Hilton, there was Consuelo Vanderbilt Balsan – a Gilded Age heiress and socialite, renowned for her beauty and wealth. Ms. Balsan’s onetime Hamptons home was slated to hit the market priced at $38 million with Tim Davis of the Corcoran Group.

Located on Ox Pasture Road in Southampton, the shingle-style home was built around 1910 and is known as “Gardenside” or “Cara-Mia”. Ms. Balsan, the great-granddaughter of railroad magnate Cornelius Vanderbilt, owned the house until her death in 1954.

According to public records, the estate is owned by Robert G. Goldstein, executive vice president and president of global gaming operations at Las Vegas Sands Corp, and his wife Sheryl, who purchased the house in 2002 for $17.4 million.” (The Wall Street Journal, August 1, 2014, M2).

1. Assume the growth rate of 6.19% prevailed since 1910. Calculate the price of the house in 1954. Please show your work.

2. You were using the time value of money concept to answer question #1. Think about the time line for that problem. What is the time point 0 in that problem? Please explain your answer.

Answer 1

Ans: Computation of price of Hamptons Home in 1954

Price of the house in 2002 is $17.4 Million

Growth rate since 1910 is 6.19%

Time period between 1954 to 2002 is 48 years

Time value of money or Present value factor = (1/ (1+Interest rate))^No.of years

Present value factor of 48 years = (1/(1+6.19%)^48)

= 0.056

So the price of the house in 1954 = Price of the house in 2002 * Present value factor of 48 years

= $17.4 million * 0.056

= $0.9744 million or $974,400