1. Bob bought a property today for $100,000. He thinks the property will increase in value at the rate of 5 percent per year. If he is correct, what will the property be worth in five years?

2. If the property in the previous question requires Gloria to put $115,000 of equity into the deal, should she invest in this property? Why or why not?

3. Gloria wants to be a real estate investor. She has found a property she thinks might be a good deal. She has done some research about the property that has led her to the following forecast of the money she will be able to put in her pocket at the end of each of the next five years (with disposition at the end of year 5) as a result of owing this property:

Year 1: $22,350 Year 2: $21,785 Year 3: $23,650 Year 4: $23,830 Year 5 $77,650

4. If Gloria decides that she will only buy this property if she can earn an annual return of 11 percent, how much equity should she be willing to invest in the property today?

(Take the future payments and calculate each payment's present value using 11% and applying the number of periods away from the present. After you have obtained each present value add all the present values to get the total value Gloria should pay in the present to earn 11% return.)

5. If the property in the previous question requires Gloria to put $115,000 of equity into the deal, should she invest in this property? Why or why not?

If the property in the previous question requires Gloria to put $115,000 of equity into the deal, what is the NPV of this deal?

(This problem requires the use of the net present value (NPV) formula: NPV=-CF_0+(CF_1)/((1+i)^1 )+(CF_2)/((1+i)^2 )+(CF_3)/((1+i)^3 )+(CF_4)/((1+i)^4 )+...+(CF_N)/((1+i)^N ). Just calculate the present values of all future payments, and subtract the purchase price. )