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Foundations Of Financial Management
Found in: Page 284
Foundations Of Financial Management

Foundations Of Financial Management

Book edition 16th
Author(s) Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Pages 768 pages
ISBN 9781259277160

Short Answer

Question: Morgan Jennings, a geography professor, invests $50,000 in a parcel of land that is expected to increase in value by 12 percent per year for the next five years. He will take the proceeds and provide himself with a 10-year annuity. Assuming a 12 percent interest rate, how much will this annuity be?

Answer

The annuity will be $15,605.95.

See the step by step solution

Step by Step Solution

Step 1: Identification of the required information

Present value of land (PV) = $50,000

Periods (n) = 5

Incremental rate (i) = 12%

Step 2: Computation of the value of land after 5 years (FV)

Step 3: Identification of the required information

Present value (PV) = $88,117.08

Periods (n) = 10

Interest rate (i) = 12%

Step 4: Computation of the annuity (PMT)

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