You finance a development with an interest only mortgage having an initial balance of $800 000 to
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Question:
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. the rate of return is 10%
b) Calculate the current (date 0) market value of your equity if you postpone the start of development until a month from now, when the risk you face about the state of the market will be resolved
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