Purchase Solution

Compound Interest, Future Value and Present Value

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A person has to decide about buying a piece of land worth $28,000. It is expected, that in 2 years, the projected price of the land will be $32,500'. The person has a Compound Deposit worth $30,000 now, which earns 4% interest (compounded annually) and is bound to mature in 2 years. If the person cashes the Compound Deposit now, in order to buy the land, he will have to to pay an early withdrawal penalty of $600. Should the buyer purchase the land now or should he puchase after 2 years? Explain, giving reasons in support of your decision.

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The buyer has a C.D. worth $30000
If, he wants to buy the land now, he will have to cash the C.D. and will eventually have to pay $600 as penalty. ...

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