You have the option of buying a property or just leasing it, in the first case you must pay 20% of the property today and pay a mortgage loan for 20 years for 80% remaining, the credit has a cost of 6.0% in annual US cash, compounded monthly, Today the property has a value of 10,000 US and its value increases by 2% per year in real terms. In the case of leasing it, you must pay 75% of the value of the fee. Your rate discount is 5% in nominal terms. to. a. What option would you take if the evaluation is for 20 years? b. What if now the evaluation period is up to infinity? c. Calculate the discount rate that makes you indifferent between the two alternatives.
You have the option of buying a property or just leasing it, in the first case you must pay 20% of the property today and pay a mortgage loan for 20 years for 80% remaining, the credit has a cost of 6.0% in annual US cash, compounded monthly, Today the property has a value of 10,000 US and its value increases by 2% per year in real terms. In the case of leasing it, you must pay 75% of the value of the fee. Your rate discount is 5% in nominal terms. to. a. What option would you take if the evaluation is for 20 years? b. What if now the evaluation period is up to infinity? c. Calculate the discount rate that makes you indifferent between the two alternatives.
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 15P
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You have the option of buying a property or just leasing it, in the first case you must pay 20% of the property today and pay a mortgage loan for 20 years for 80% remaining, the credit has a cost of 6.0% in annual US cash, compounded monthly, Today the property has a value of 10,000 US and its value increases by 2% per year in real terms. In the case of leasing it, you must pay 75% of the value of the fee. Your rate discount is 5% in nominal terms. to.
a. What option would you take if the evaluation is for 20 years?
b. What if now the evaluation period is up to infinity?
c. Calculate the discount rate that makes you indifferent between the two alternatives.
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