Question

In: Finance

A real estate developer offers to sell you some prime realestate for $563,000 today. You...

A real estate developer offers to sell you some prime real estate for $563,000 today. You agree to pay $234,000 in exactly 8 months and the remaining balance in exactly 18 months from today when you expect to receive some cash from a different investment. How much will you need to pay the developer in 18 months if the interest rate is 5.3% per annum compounding monthly (rounded to the nearest dollar; don’t show $ sign or commas)?

Solutions

Expert Solution

Monthly interest rate = 5.3%/12 = 0.004416666667

Value of investment today = $563,000

Value of investment in 8 months = Value of investment today * (1 + r)^8

Value of investment in 8 months = 563,000 * (1 + 0.004416666667)^8

Value of investment in 8 months = $583,202.905505874

Of this we agree pay $234,000 in 8 months.

The balance after making payment is 583,202.905505874 - 234,000 = $349,202.905505874

The balance amount after 18 months = 349,202.905505874 * (1 + r)^(18 - 8)

The balance amount after 18 months = 349,202.905505874 * (1 + 0.004416666667)^10

The balance amount after 18 months = $364,936.206859

We will need ot pay the developer $364,936 in 18 months

jeff jeffy answered 2 years ago
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