Question

use excel, do it like this

PV=

FV=

PMT=

N=

I/Y=

IN=

1. A Real Estate Investor is considering the purchase of an apartment building. The investor estimates the current value at $400,000. If the market price appreciates at 8 percent annually what will be the price of the unit at the end of 5 years? 2. Suppose you were selling your home. A buyer has offered to pay you $115,000 now and another $85,000 in 2 years. What is the value today of the payment received in 2 years, given your required rate of return is 7 percent? 3. Suppose you have the option to buy a parcel of vacant land to build your first home. The option is for a 5-year period, and the purchase price is $65,000. You do not intend to exercise the option until the end of the 5th year, which means you have 5 years to accumulate the required $65,000 in cash to buy the land. Given you have access to a savings account that pays 6 percent interest that compounds annually, how much will you have to save each year? 4. What is the difference between an ordinary annuity and an annuity due?

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

А в Nm PV= 1/Y= N= $400,000.00 8.00% Current value of Building Annual appreciation rate No. of years Price of the unit at the end of 5 years FV= $587,731.23 21 $85,000.00 7.00% FV= 1/Y= N= PV= Payment received in 2 years Required rate of return No. of years Value of payment, today 2 $74,242.29 FV= $65,000.00 6% 1/Y= Amount required at end of 5th year Interest rate annually No. of years Annual saving at end of each year N= PMT= 15 $11,530.77 16 17

Cell reference -

B 1 Nm 7 PV= 1/Y= 400000 0.08 Current value of Building Annual appreciation rate No. of years Price of the unit at the end of 5 years Na FV= =FV(D3,D4,,-D2,0) 00 85000 0.07 FV= 1/Y= N= PV= Payment received in 2 years Required rate of return No. of years Value of payment, today 10 =PV(D8, D9,-D7,0) 65000 0.06 12 3 13 14 15 16 17 FV= 1/Y= N= PMT= Amount required at end of 5th year Interest rate annually No. of years Annual saving at end of each year =PMT(D13,D14,,-D12,0)

4.

Annuity is a series of periodic payments. Basically, there are two types of Annuity.

1. Ordinary Annuity: In which periodic payments are made at end of each period.
2. Annuity Due : In which periodic payments are made at beginning of each period.

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.