Question: What is the price of the land? Hint: According to economic theory, agr

Question

Question: What is the price of the land? Hint: According to economic theory, agricultural land values (prices) equal the present value of expected future rents, where rents are calculated as the difference between revenue received and production costs. Suppose the interest rate is 5% and expected future rents on 1 acre of land are as follows: What is the present value of SFV in the future? I+r) Year 1: $125 Year 2: $250 Year 3: $320 Example. Fv-$100 r=10% n-10 years PV-$39 The present value is the amount of money which, put in the bank, would iust equal the specified amount SEY n years in the future

Explanation / Answer

price of the land

=125/(1+5%)^1+250/(1+5%)^2+320/(1+5%)^3

=622.23

the above is the answer

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