At 45 years of age, Seth figured he wanted to work only 10 more
years. Being a full-time landlord had a lot of advantages: cash flow, free
time, being his own boss—but it was time to start thinking towards retirement.
The real estate investments that he had made over the last 15 years had paid
off handsomely. After selling a duplex and a four-unit and paying the
associated taxes, Seth had $350,000 in the bank and was debt-free. With only 10
years before retirement, Seth wanted to make solid financial decisions that
would limit his risk exposure. Fortunately, he had located another property
that seemed to meet his needs—an older, but well maintained four-unit
apartment. The price tag was $250,000, well within his range, and the apartment
would require no remodeling. Seth figured he could invest the other $100,000, and
between the two hoped to have $1 million to retire on by age 55.
- 4.
A friend of Seth’s who is a real estate developer needs to borrow $80,000
to finish a development project. He is desperate for cash and offers Seth
18%, compounded monthly, for 2 and
one half years. Find the future value of the loan using the future
value table. Does this loan meet Seth’s goals of low risk? How could he
reduce the risk associated with this loan? - 5.
After purchasing the apartment, Seth receives a street, sewer, and gutter
assessment for $12,500 due in 2 years. How much would he have to invest
today in a CD paying 2%, compounded semiannually, to fully pay the
assessment in 2 years?
Note: Show all work
and calculations. The use of Microsoft® Excel® software is required.
This has to be done
on excel as stated above with all work and calculations shown.
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