QUESTION 4 You think you can buy a house today for $259,999 and sell it in 4.5 y
ID: 2612715 • Letter: Q
Question
QUESTION 4
You think you can buy a house today for $259,999 and sell it in 4.5 years for $359,999. If similar risk investments must earn 7.46%, is the investment attractive and why or why not?
Yes, some money would be coming to you.
Yes, you would earn about 7.50% > 7.46%.
No, no money would be earned.
No, you would earn about 6.83% < 7.46%.
a.Yes, some money would be coming to you.
b.Yes, you would earn about 7.50% > 7.46%.
c.No, no money would be earned.
d.No, you would earn about 6.83% < 7.46%.
Explanation / Answer
Dear Friend, For the given question it is better to invest in house since it yields 7.5% return which is more than risk investment which yields 7.46%. At 7.46% rate of interest, Present value of Investment (P) 259,999.00 Rate of interest R 0.0746 No of years N 4.50 Future Value- F = P(1+R)N 359,403.61 But House Value 359,999.00 Loss if selected the Risk investment 595.39 At 7.5% rate of interest, Present value (P) 259,999.00 Rate of interest R 0.075 No of years N 4.50 Future Value- F = P(1+R)N 360,006.02 House Value 359,999.00 (7.02) (Diff Round off ** Investment in house yields 7.5% which is higher than 7.46%,yield of investment. (ANSWER B
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