Question

“Before there was Paris Hilton, there was Consuelo Vanderbilt Balsan – a Gilded Age heiress and socialite, renowned for her beauty and wealth. Ms. Balsan’s onetime Hamptons home was 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 1954. 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 2002 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.

1.Calculate the annual compound growth rate of the house price during the period when the house was owned by Robert G. Goldstein (since 2002). (Round the number of years to the whole number). Please show your work.

2.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.

3.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.

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

5.Assume the growth rate that you calculated in #1 prevailed since 1910. Calculate the price of the house in 1954. Please show your work.

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

7. Reflection – the students also should include a paragraph in the initial response in their own words reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace.

Answer 1

Q1
Particulars	Amount ($' million)
Purchase value of the house in 2002	17.4
Market price in 2014	28
Increase since 2002 (28.00- 17.40)	10.6
Number of years since purchase	12
Annual increase in price (10.6/12)	0.88333333
Annual growth rate (0.8833 x 100/17.40)	5.07662835
Q2
Assuming the house was sold in August, 2014 by Robert Goldstein
Particulars	Amount ($' million)
Sale value (Assumed)	28
Annual growth rate	5.08%
Total growth over next 30 years (5.08 %x 30)	152.4
Value of the asset in August 2014	28
Add: Expected growth (28 x 152.40%)	42.672
Price of the house after 30 years	70.672
Q3
Assuming the house was sold in August, 2014 by Robert Goldstein
Particulars	Amount ($' million)
Sale value (Assumed)	28
Annual growth rate	5.08%
Current financial year is 2018
Thus, number of years till now since the house was sold	4
Total growth over next 30 years (5.08 %x 4)	20.32
Sale value (Assumed)	28
Add: Expected growth (28 x 20.32%)	5.6896
Price of the house now	33.6896
Q4
Particulars	Amount ($' million)
Price in 2014	28
Number of years between 1910 and 2014	104
Growth rate	5.08%
Growth in 104 years (5.08 x 104)	528.32
Price in 1910 (28 x 5.08 /528.32)	0.26923077
Q5
Particulars	Amount ($' million)
Price in 1910 (28 x 5.08 /528.32)	0.26923077
Number of years to 1954 from 1910	44
Growth annual	5.08%
Growth in 44 years (5.08 x 44)	223.52
Price in 1910 (28 x 5.08 /528.32)	0.26923077
Add: Growth in 44 years (0.26923077 x223.52%)	0.60178462
Price in 1954	0.87101538
Q6
The time point zero in this case is the year 1910 as it was the year when the asset house was built

From the above calculations it has been understood that how the annual growth rate if stays constant impacts the value of an asset over the years. The house that was built in the year 1910 and had a value of merely $0.26923077 million is current, i.e. in the year 2018 is expected to value $33.6896 million. This shows that holding capital assets could provide huge return to its owners provided the asset has relevant value in the market. It is important to note that since house and land is scarce resources hence, in general the value of such assets keep on rising.