(For no. 4-5) Problem 2: Your uncle sold his rice field land in Kabasalan, Zamboanga Sibugay, and is planning to purchase residential land in Titay, Zamboanga Sibugay. He utilized his media account in selling the land and was able to receive two compelling offers: Offer 1: P1,000,000 down payments plus P2,500,000 lump-sum payment 5 years from now. Offer 2: P1,000,000 down payments plus P40,000 per month for 5 years Which among the two offers should your uncle pick if the payments will have an interest of 12% compounded monthly? Find the fair market value of the two offers. 4. What is the future value of offer 1? a. P1 676 234.17 b. P2 676 234.17 c. P3 676 234.17 d. P4 676 234.17 5. What is the future value of offer 2? a. P1 204 040.2 b. P2 204 040.2 c. P3 204 040.2 d. P4 204 040.2

(For no. 4-5) Problem 2: Your uncle sold his rice field land in Kabasalan, Zamboanga Sibugay, and is planning to purchase residential land in Titay, Zamboanga Sibugay. He utilized his media account in selling the land and was able to receive two compelling offers: Offer 1: P1,000,000 down payments plus P2,500,000 lump-sum payment 5 years from now. Offer 2: P1,000,000 down payments plus P40,000 per month for 5 years Which among the two offers should your uncle pick if the payments will have an interest of 12% compounded monthly? Find the fair market value of the two offers. 4. What is the future value of offer 1? a. P1 676 234.17 b. P2 676 234.17 c. P3 676 234.17 d. P4 676 234.17 5. What is the future value of offer 2? a. P1 204 040.2 b. P2 204 040.2 c. P3 204 040.2 d. P4 204 040.2

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Assume you paid cash for a beach house in Florida a while back and that you are now wanting to sell it. You have two offers for the house as follows: 1. $500,000 paid immediately (spot market sale) 2. $520,000 paid 1 year from now (Forward sale) Here is a list of the annual cost/income considerations: ● Property tax: $5,000 Insurance: $3,000 HOA dues: $4,000 Maintenance: $3,000 Rental Income: $35,000 What is the fair value forward price from your perspective? Opportunity cost of not receiving the 500K today is the money-market rate of 5% = $25,000 for 1 year ● $535,000 $540,000 $505,000 $495,000 $520,000
2. Suppose that you are considering speculating on some vacant land located on Bali Hai, an island in the South Pacific. You could acquire the land today for $850,000. You plan on holding it for fifteen years and then selling it. Annual taxes, insurance and upkeep (mowing, clearing of debris, etc.) of the land will be $35,000, paid at the end of the first year. These costs will increase annually at a 2.5% rate until you sell the land at the end of the fifteenth year. If you require an annual rate of return of 20%, what is the minimum amount that you have to net (after commissions, transfer taxes, fees, etc.) on the sale of this land at the end of the final year to earn your required rate of return? (Ignore income taxes)
Your uncle passed away and left you $10 million with the stipulation that it be invested in real estate in the next 90 days. As word of your newfound wealth leaked into the real estate brokerage community, a line of brokers formed outside your door.“You should buy this office building” said the first broker, Ira Our. “At $20 million you’ll have to borrow money to buy it, but I know an Office Building REIT that wants to buy it for $21 million. The problem is that their Investment Committee doesn’t meet until next week and the Seller needs a binding Letter of Intent this week. You can flip the building in 45 days to the Office Building REIT and, after all expenses, pocket a quick $500,000. It works out to a 32.5% Internal Rate of Return. How are you going to beat that?”What are the practical and theoretical weaknesses in the investment/valuation methodology of Ira Our?
Brief Exercises BE6.7 (LO2) Jose Garcia's lifelong dream is to own a fishing boat to use in hisretirement. Jose has recently come into an inheritance of $400,000. He estimatesthat the boat he wants will cost $300,000 when he retires in 5 years. How much ofhis inheritance must he invest at an annual rate of 8% compounded annually) tobuy the boat at retirement? BE6.8 (LO2) Refer to the data in BE6.7. Assuming quarterly compounding of amountsinvested at 8%, how much of Jose Garcia's inheritance must be invested to haveenough at retirement to buy the boat?
Bob buys a property that costs $1,000,000. The property is projected to generate NOI as follows: Year NOI 1 $100,000 2 $105,000 3 $110,000 Bob will own the property for two years. Bob will sell the property at the end of year 2 at a cap rate that is 250 basis points lower than the cap rate at which he bought the property. Assume Bob finances his purchase with a 50% LTV Fixed Rate IO loan at an annual rate of 5% with annual compounding and annual payments. What is Bob’s annualized IRR for the investment in question? A. 83.54% B. 52.38% C. 78.93% D. 79.71%
Alia wants to open up a sandwich shop in Amman. She collects data on the initial cost, operating and maintenance cost, yearly benefit (revenue from sandwich sales), and salvage value of the equipment she buys for the sandwich shop when she closes down the business in 5 years. Determine the best alternative using the annual cash flow analysis method for an interest rate of 8%. Do nothing is a possible alternative. Alt B $45,000 $25,000 $10,000 $4,000 $18,000 $13,000 $3,000 $6,000 Alt A First Cost Benefit per yr O&M annua st Salvage Value Life in years 5 (35 Points) Alt C $20,000 $1,900 $9,000 $4,600 Alt A $45,000 $10,000 and $18,000 Alt B $25,000 $4,000 $13,000 Alt C $20,000 $1.900 $9,000 First Cost Benefit per year Operations maintenance cost Salvage Value Life in years $3,000 $6.000 $4,600
i need the answer quickly
Illustrate the cash flow of the two offers using a time-diagram.
: "Home insurance and options" You own a house that costs $200,000 to build. You buy a $15,000 insurance policy to compensate you for damage to the house. The deductible is $25,000. (If your house suffers $4,000 damage from a storm, you pay for all repairs yourself. If the house suffers $45,000, in damage, you pay $25,000 and the insurance company pays the remaining $20,000.) (1) Graph the positions of the unhedged home, the home insurance and the hedged home position on the profit and loss diagram. In the diagram, specify the relevant values on the diagram. (2) To which trader type the insurance company belong? Explain your answer. a. Call buyer b. Call seller c. Put buyer d. Put seller

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