Question

In: Finance

I am considering selling my current home through an ownerfinanced arrangement. I have beenoffered...

I am considering selling my current home through an owner financed arrangement. I have been
offered $1,000 per month for 20 years with the first payment due immediately plus an
additional $100,000 with the last payment at the end of 20 years. If the appropriate discount
rate is 6% APR compounded monthly, then what is the equivalent cash offer for my house?

Solutions

Expert Solution

Equivalent Cash offer = PV of CFs

PV of Annuity Due of $ 1000 per month :

PV of Annuity Due:

Annuity is series of cash flows that are deposited at regular intervals for specific period of time. Here cash flows are happened at the begining of the period. PV of annuity is current value of cash flows to be received at regular intervals discounted at specified int rate or discount rate to current date.


PV of Annuity Due = Cash Flow + [ Cash Flow * [ 1 - [(1+r)^-(n-1)]] /r ]
r - Int rate per period
n - No. of periods

Particulars Amount
Cash Flow $            1,000.00
Int Rate 0.500%
Periods 240

PV of Annuity Due = [ Cash Flow + Cash Flow * [ 1 - [(1+r)^-(n-1)]] / r ]
= [ $ 1000 + $ 1000 * [ 1 - [(1+0.005)^-239] ] / 0.005 ]
= [ $ 1000 + $ 1000 * [ 1 - [(1.005)^-239] ] / 0.005 ]
= [ $ 1000 + $ 1000 * [ 1 - [0.3036] ] / 0.005 ]
= [ $ 1000 + $ 1000 * [0.6964] ] / 0.005 ]
= [ $ 1000 + $ 139278.68 ]
= $ 140278.68
PV of $ 100000 after 20 Years:

Present Value:

Present value is current value of Future cash flows discounted at specified discount Rate.

PV = FV / (1+r)^n
Where r is Int rate per period
n - No. of periods

Particulars Amount
Future Value $          100,000.00
Int Rate 0.5000%
Periods 240

Present Value = Future Value / ( 1 + r )^n
= $ 100000 / ( 1 + 0.005 ) ^ 240
= $ 100000 / ( 1.005 ) ^ 240
= $ 100000 / 3.3102
= $ 30209.61

Cash offer Price = $ 140278.68 + $ 30209.61

= $ 170488.29


Related Solutions

Working with Python. I am trying to make my code go through each subject in my...
Working with Python. I am trying to make my code go through each subject in my sample size and request something about it. For example, I have my code request from the user to input a sample size N. If I said sample size was 5 for example, I want the code to ask the user the following: "Enter age of subject 1" "Enter age of subject 2" "Enter age of subject 3" "Enter age of subject 4" "Enter age...
I am not aware of GR, but due to curiosity i have a question in my...
I am not aware of GR, but due to curiosity i have a question in my mind. Please let me know if it is inappropriate to ask here. My question is about singularity. I am under the assumption that singularity means in mathematical terms equivalent to a discontinuity in a function. My question is what type of discontinuity are the ones corresponding to Penrose-Hawking singularity theorems and also to the the naked singularity ? by type i mean removable (left...
I'm getting an error with my code on my EvenDemo class. I am supposed to have...
I'm getting an error with my code on my EvenDemo class. I am supposed to have two classes, Event and Event Demo. Below is my code.  What is a better way for me to write this? //******************************************************** // Event Class code //******************************************************** package java1; import java.util.Scanner; public class Event {    public final static double lowerPricePerGuest = 32.00;    public final static double higherPricePerGuest = 35.00;    public final static int cutOffValue = 50;    public boolean largeEvent;    private String...
If I am looking to maximize my investment as an investor and the company I am...
If I am looking to maximize my investment as an investor and the company I am looking at has a low or unstable payout schedule, what would be the point of investing?
Jasmine and her husband are considering trading up their home by selling their current house and...
Jasmine and her husband are considering trading up their home by selling their current house and buying a new house at a price of $250,000. They plan to sell their current house for $120,000 and use the money for a down payment. They will take out a mortgage to cover the remaining balance. The interest rate for such a mortgage amortized over a 20-year period is 7.75%, compounded monthly. (Note that the Canadian mortgages are calculated differently than other types...
Jasmine and her husband are considering trading up their home by selling their current house and...
Jasmine and her husband are considering trading up their home by selling their current house and buying a new house at a price of $250,000. They plan to sell their current house for $120,000 and use the money for a down payment. They will take out a mortgage to cover the remaining balance. The interest rate for such a mortgage amortized over a 20-year period is 7.75%, compounded monthly. (Note that the Canadian mortgages are calculated differently than other types...
I have the following code for my java class assignment but i am having an issue...
I have the following code for my java class assignment but i am having an issue with this error i keep getting. On the following lines: return new Circle(color, radius); return new Rectangle(color, length, width); I am getting the following error for each line: "non-static variable this cannot be referenced from a static context" Here is the code I have: /* * ShapeDemo - simple inheritance hierarchy and dynamic binding. * * The Shape class must be compiled before the...
•I am assigned a project from my CPA firm. I have to go into a new...
•I am assigned a project from my CPA firm. I have to go into a new building and try to find as many pieces of furniture and fixtures from the building as I can. So for example, a door, a drop ceiling, a window, a drinking fountain. I will do this so I can use 7 year depreciation instead of 39 year depreciation. If I find $1,000,000 of things I can argue are fixtures instead of buildings, the client will...
•I am assigned a project from my CPA firm. I have to go into a new...
•I am assigned a project from my CPA firm. I have to go into a new building and try to find as many pieces of furniture and fixtures from the building as I can. So for example, a door, a drop ceiling, a window, a drinking fountain. I will do this so I can use 7 year depreciation instead of 39 year depreciation. If I find $1,000,000 of things I can argue are fixtures instead of buildings, the client will...
I am implementing a generic List class and not getting the expected output. My current output...
I am implementing a generic List class and not getting the expected output. My current output is: [0, 1, null] Expected Output in a separate test class: List list = new SparseList<>(); list.add("0"); list.add("1"); list.add(4, "4"); will result in the following list of size 5: [0, 1, null, null, 4]. list.add(3, "Three"); will result in the following list of size 6: [0, 1, null, Three, null, 4]. list.set(3, "Three"); is going to produce a list of size 5 (unchanged): [0,...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT