Question

Before there was Paris Hilton, there was Consuelo Vanderbilt Balsan – a Gilded Age heiress and socialite, re-nowned for her beauty and wealth. Now Ms. Balsan’s onetime Hamptons home is slated to hit the market priced at $28 million with Tim Davis of the Corcoran Group.

Located on Ox Pasture Road in Southampton, the shingle-style home was built around 1910 and is known as “Gardenside” or “Cara-Mia”. Ms. Balsan, the great-granddaughter of railroad magnate Cornelius Vanderbilt, owned the house until her death in 1964.

According to public records, the estate is owned by Robert G. Goldstein, executive vice president and president of global gaming operations at Las Vegas Sands Corp, and his wife Sheryl, who purchased the house in 2000 for $17.4 million.” (The Wall Street Journal, August 1, 2014, M2)

In your initial response to the topic you have to answer all questions.

You are expected to make your own contribution in a main topic as well as respond with value added comments to at least two of your classmates as well as to your instructor.

Calculate the annual compound growth rate of the house price during the period when the house was owned by Robert G. Goldstein (since 2000). (Round the number of years to the whole number). Please show your work.

Assume that the growth rate you calculated in question #1 remains the same for the next 30 years. Calculate the price of the house in 30 years after it was sold by Robert G. Goldstein. Please show your work.

Assume that the growth rate you calculated in question #1 remains the same since the house was sold. Calculate the price of the house today. (Round the number of years to the whole number).Please show your work.

Assume the growth rate that you calculated in #1 prevailed since 1910. Calculate the price of the house in 1910. Please show your work.

Assume the growth rate that you calculated in #1 prevailed since 1910. Which price was paid for the house in 1964? Please show your work.

You were using the time value of money concept to answer the question #5. Think about the time line for that problem. What is the time point 0 in that problem? Please explain your answer.

Answer 1

NOTE: This question would involve major assumptions regarding the time when the house was sold by Mr.Goldstein. As the public record from Wall Street Journal appeared on 1st August 2014 it can be safely assumed that the property came on the market for a price of $ 28 million in that year and hence can be assumed to have been sold at the end of that year i.e 2014. Further, let us assume that Mr.Goldstein bought the property at the end of 2000.

Tenure under Goldstein = 14 years, Purchase Price = $ 17.4 million and Sale Price = $ 28 million

CAGR (Compounded Annual Growth Rate) = [(28/17.4)^(1/14) - 1] x 100 = 3.46 % approximately.

Price 30 years after it was sold by Goldstein (30 years after 2014 i.e end of 2044) = 28 x (1.0346)^(30) = $ 77.68 million

Assuming current time is end of 2017,price of house = (1.0346)^(3) x 28 = $ 31.01 million

Price of House in 1910 = 17.4 / (1.0346)^(90) = $ 0.81 million

Price of house in 1964 = 17.4 / (1.0346)^(36) = $ 5.11 millon approximately

NOTE: Please raise a separate query for the solution to the last sub-part.