Hongyi has decided to change his investment strategy. Instead of holding the property forever, he will...

Transcribed Image Text:

Hongyi has decided to change his investment strategy. Instead of holding the property forever, he will sell it after ten years. The property currently has a market value of $750,000. Hongyi expects the market value of the property to grow at the rate of 2% per annum (compounded annually) over the next 10 years, after which he will sell it. Calculate the expected market value of the property in 10 years. $ Assume that Hongyi can sell the property at this expected market value in ten years. In the meantime, he will receive fortnightly rental payments of $1,500. As in part (a), each rental payment is due at the beginning of each fortnight, so the first rental payment is due immediately and the last rental payment is due two weeks before the property is sold. The interest rate applied to all cashflow items (including the income from the sale of the property) is still 6% p.a., compounded fortnightly. Recalculate the NPV of the investment. Hongyi has decided to change his investment strategy. Instead of holding the property forever, he will sell it after ten years. The property currently has a market value of $750,000. Hongyi expects the market value of the property to grow at the rate of 2% per annum (compounded annually) over the next 10 years, after which he will sell it. Calculate the expected market value of the property in 10 years. $ Assume that Hongyi can sell the property at this expected market value in ten years. In the meantime, he will receive fortnightly rental payments of $1,500. As in part (a), each rental payment is due at the beginning of each fortnight, so the first rental payment is due immediately and the last rental payment is due two weeks before the property is sold. The interest rate applied to all cashflow items (including the income from the sale of the property) is still 6% p.a., compounded fortnightly. Recalculate the NPV of the investment.

Answer rating: 100% (QA)

To calculate the expected market value of the property in 10 years we can use the formula for compou... View the full answer