A speculator has purchased land along the southern Oregon coast. He has taken a loan with theend-of-year payments of $7,600 for 12 years.

Future value.

A speculator has purchased land along the southern Oregon coast. He has taken a loan with theend-of-year payments of $7,600 for 12 years. The loan rate is 6%. At the end of 12 years, he believes that he can sell the land for $120,000. If he is correct on the future price, did he make a wise investment?

Solutions

Expert Solution

A speculator took a loan for purchase of land and paid an periodic annual annuity paymnet at the end of year for 12 years at $7600

He sold the land after 12 years at $120,000

Calculating the Future Value if the speculator had invested that money in account earning interest at loan rate of 6%:-

Where, C= Periodic Payments = $7600

r = Periodic Interest rate = 6%

n= no of periods = 12

Future Value at the end of year 12 is $128,211.55

So, the Future Value of payments is more than that of the Sale value of land.

Thus, he did not make a wise investment.

jeff jeffy answered 2 years ago

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