Question

Calculate the following on a purchase of a property. The interest rate is 14%

a )$2,000,000 at the end of the fifth year and 1,500,000 at the end of the 10th year

b) $40,000 deposit paid immediatley - then 200,000 p.a paid forever from rental of property. The first 200,000 is paid at the end of the year

Provide formulas and working out

Answer 1

a )$2,000,000 at the end of the fifth year and 1,500,000 at the end of the 10th year

Calculating the Present Value of both the payments:-

where, r = Interest rate = 14%

Present Value = $1038,737.33 + $404,615.71

Present value = $1,443,353.04

So, Property Price is $1,443,353.04

b) $40,000 deposit paid immediatley - then 200,000 p.a paid forever from rental of property. The first 200,000 is paid at the end of the year

calculating the Present Value of perpetuity payment along with amount paid immediatley:-

Present Value = Amount paid immediatley + Annual Rental property/Interest rate

Present Value = $40,000 + $200,000/0.14

Present Value = $40,000 + $1428,571.43

Present Value = $1468,571.43

So, Property Price is $1,468,571.43

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