You finance a development with an interest only mortgage having an initial balance of $800 000 to construct a warehouse. The market for warehouse space will either boom or bust next month each alternative having a 0.5 probability of occurring. If market booms, you will each a monthly rent of $150 000, but if it busts you will receive a monthly rent of $50 000. beginning one month after development with the respective rents lasting through the infinite future,

a) Calculate the current (date 0) market value of your equity if you start development today?

Answer rating: 100% (QA)

To calculate the current market value of your equity we need to consider the present value of the fu... View the full answer