Question: Julia currently is considering the purchase of some land to
Julia currently is considering the purchase of some land to be held as an investment. She and the seller have agreed on a contract under which Julia would pay $ 1,000 per month for 60 months, or $ 60,000 total. The seller, not in the real estate business, acquired the land several years ago by paying $ 10,000 in cash. Two alternative interpretations of this transaction are (1) a price of $ 51,726 with 6 percent interest and (2) a price of $ 39,380 with 18 percent interest. Which interpretation would you expect each party to prefer? Why?
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