Real Estate Principles Study Set 1

Business

Quiz 14 :

The Effects of Time and Risk on Value

Quiz 14 :

The Effects of Time and Risk on Value

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How much would you pay today to receive $50 in one year and $60 in the second year if you can earn 15 percent interest on alternative investments of similar risk
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Calculate the present value by using the following formula:
img Calculate the present value to earn $50 as follows:
img Therefore, the present value to earn $50 is
img .
Calculate the present value to earn $60 as follows:
img Therefore, the present value to earn $50 is
img .
Calculate the present value to be deposited as follows:
img Therefore, the amount to be deposited is
img .
Therefore the
img is correct.

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You are able to buy an investment today for $1,000 that gives you the right to receive $438 in each of the next three years. What is the internal rate of return on this investment
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This is simply a yield calculation problem. Like any time-value-of-money problem, we are given four inputs and are asked to solve for the fifth. In this case, we must solve for the interest rate as follows:
img Solving this setup tells us the above loan yields a 15 percent return.

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How much would you pay for an investment that provides $1,000 at the end of the first year if your required rate of return is 10 percent Now compute how much you would pay at 8 percent and 12 percent rates of return.
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At 10%, an investor would be willing to pay $909.09.
img At 8%, an investor would be willing to pay $925.93.
img At 12%, an investor would be willing to pay $892.86.
img

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Bob Jackson owns a parcel of land that a local farmer has offered to rent for the next 10 years. The farmer has offered to pay $20,000 today or an annuity of $3,200 at the end of each of the next 10 years. Which payment method should Dr. Jackson accept if his required rate of return is 10 percent
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Calculate the present value of the income stream given below assuming a discount rate of 8 percent. What happens to value if the discount rate increases to 20 percent img
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If you deposit $1 at the end of each of the next 10 years and these deposits earn interest at 10 percent, what will the series of deposits be worth at the end of the 10th year
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How much would you pay for the right to receive $80 at the end of 10 years if you can earn 15 percent interest on alternative investments of similar risk
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Your grandmother gives you $10,000 to be invested in one of three opportunities: real estate, bonds, or zero coupon bonds. If you invest the entire $10,000 in one of these opportunities with the expected cash flows shown below, which investment offers the highest NPV Assume an 11 percent discount rate is appropriate for all three investments. img
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What amount invested at the end of each year at 10 percent annually will grow to $10,000 at the end of five years
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What is the present value of the following series of cash flows discounted at 12 percent: $40,000 now, $50,000 at the end of the first year; $0 at the end of the second year; $60,000 at the end of the third year; and $70,000 at the end of the fourth year
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If a landowner purchased a vacant lot six years ago for $25,000, assuming no income or holding costs during the interim period, what price would the landowner need to receive today to yield a 10 percent annual return on the land investment
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As the level of perceived risk increases,
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If you purchase a parcel of land today for $25,000, and you expect it to appreciate 10 percent per year in value, how much will your land be worth 10 years from now
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How much would you pay today for the right to receive nothing a year for the next 10 years and $300 a year for the following 10 years if you can earn 15 percent interest on alternative investments of similar risk
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What is the present value of $500 received at the end of each of the next three years and $1,000 received at the end of the fourth year, assuming a required rate of return of 15 percent
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If your parents purchased an endowment policy of $10,000 for you and the policy will mature in 12 years, how much is it worth today, discounted at 15 percent
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Assume a property is priced at $5,000 and has the following income stream: img Would an investor with a required rate of return of 15 percent be wise to invest at the current price
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How much will a $50 deposit made today be worth in 20 years if interest is compounded annually at a rate of 10 percent
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Calculate the IRR and the NPV for the following two investment opportunities. Assume a 16 percent discount rate for the NPV calculations. img
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If you deposit $50 per month in a bank account at10 percent interest, how much will you have in your account at the end of the 12th year
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