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What are the risks and problems of living in subdivided housing units? List and explain four...

  1. What are the risks and problems of living in subdivided housing units? List and explain four of them.
  1. You are offered an annuity that will pay $10,000 a year for ten years (that is, ten payments), but the payments start after five years have elapsed. If you want to earn 8% on your funds, what is the maximum you should pay for this annuity?

Solutions

Expert Solution

1:

Following are risks and problems of living in subdivided housing units

1: the air contains greater amount of bacteria which increases the risk of catching Airborne diseases.

2: most of these units do not follow the safety norms. As such there is greater risk due to fire and natural calamities. In such units, even a small fire can be disastrous and cause numerous casualties.

3: there are multiple hygiene issues due to improper installations and plumbing which can cause leakages and spread diseases.

4: many of the subdivided housing units are extremely old which increases the risk of collision. These have been constructed with complete disregard to the building codes and removal of the load bearing walls has been common.

2: Using financial calculator
Input: PMT=10000, N=10,I/Y=8

solve for PV as -67100.81

This is the PV at time 5

Maximum payment for the security = 67100.81/1.08^5 = $45667.69


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