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Homework 4

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  1. Using discounted cash flow analysis, what is the most an investor wishing to get at least a 10% return should pay for an investment expected to have the following annual cash flows at the end of each year:
    Year 1:   $15,100
    Year 2:   $16,400
    Year 3:   $16,800
    Year 4:   $16,700
    Year 5:   $18,100 + $188,000 when the investor sells the property at that time.
    (Check the correct answer.)
    a. 
    $271,100
    b. 
    $162,983
    c. 
    $168,669
    d. 
    $179,281
    e. 
    $269,908
  2. Using discounted cash flow analysis, what is the most an investor wishing to get at least a 10% return should pay for an investment expected to have the following annual cash flows at the end of each year:
    Year 1:   $6,000
    Year 2:   $6,400
    Year 3:   $6,800
    Year 4:   $6,700
    Year 5:   $7,100 + $81,000 when the investor sells the property at that time.
    (Check the correct answer.)
    a. 
    $113,495
    b. 
    $75,132
    c. 
    $68,302
    d. 
    $114,000
    e. 
    $70,560
  3. Using the Ellwood formula, estimate the required overall rate for an investor who is expected to put down 20%, desires a 13% equity yeild, expects the property to increase 7% during his/her 11 year holding period, and expects to finance the balance of the purchase with a 30 year, monthly payment loan at 9.00% interest.
    (Check the correct answer.)
    a. 
    .0787
    b. 
    .0876
    c. 
    .0802
    d. 
    .0783
    e. 
    .0696
  4. Using the Ellwood formula, estimate the required overall rate for an investor who is expected to put down 25%, desires a 13% equity yeild, expects the property to decrease 16% during his/her 10 year holding period, and expects to finance the balance of the purchase with a 30 year, monthly payment loan at 8.75% interest.
    (Check the correct answer.)
    a. 
    .1023
    b. 
    .1100
    c. 
    .0901
    d. 
    .1075
    e. 
    .1165
  5. Using the Ellwood formula, estimate the required overall rate for an investor who is expected to put down 25%, desires a 14% equity yeild, expects the property to decrease 11% during his/her 9 year holding period, and expects to finance the balance of the purchase with a 30 year, monthly payment loan at 10.25% interest.
    (Check the correct answer.)
    a. 
    .1190
    b. 
    .1054
    c. 
    .1259
    d. 
    .1153
    e. 
    .1300

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