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Calculating Present Value of Property

You can buy property today for $3M and sell it in 5 years for $4M. (no rental income on the property)

a. If the interest rate is 8%, what is the present value of the sales price?
b. Is the property investment attractive to you? Why or why not?
c. Would your answer to (b) change if you also could earn $200,000 per year rent on the property?

Show your solutions.

Solution Preview

a. If the interest rate is 8%, what is the present value of the sales price?

The present value of the sales price is given as 4,000,000/(1.08)^5 = 2,722,333

b. Is the property investment attractive ...

Solution Summary

The solution explains how to calculate the present value and why the property investment would seem attractive.

$2.19