A landlord wants to work for only 10 more years and then retire. The landlord currently has $340,000 in the bank. The landlord plans to purchase a $200,000 apartment complex as an investment. The landlord also plans to invest the other $140,000 and aims to have $1 million between the two investments to retire on. Complete parts 1. through 5. below. Click here to see page one of the table for the future value of $1.00.

Part 1

The apartment the landlord purchased has appreciated by 5% per year over the last 30 years. Assuming this will continue, what would the future value of the $200,000 apartment be in 10 years?

Part 2

The landlord's current bank offers a 1-year certificate of deposit account paying 2% compounded semiannually. A competitor bank is also offering 2%, but compounded daily. If the landlord invests the $140,000 how much more money will the landlord have in the second bank after one year, due to the daily compounding?

Part 3

The landlord realizes that a 2% return in a certificate of deposit will never allow him to reach his goal of $1 million in 10 years. Presuming his apartment will indeed be worth $400,000 in 10 years, compute the future value of the landlord's $140,000 investment using a 10%, 15%, and 20% return compounded semiannually for 10 years.

Part 4

Find the future value of the $140,000 investment using a 10% return compounded semiannually for 10 years.

Part 5

Find the future value of the $140,000 investment using a 15% return compounded semiannually for 10 years.

Part 6

Will any of these rates allow the landlord to accomplish his goal of reaching $1 million by age 55?

A. Yes, only the 20% return will allow the landlord to produce $1 million. This is the correct answer.

B. Yes, all of the returns will allow the landlord to produce $1 million.

C. No, none of the returns will allow the landlord to produce $1 million.

D. Yes, both the 20% and 15% returns will allow the landlord to produce $1 million.

Part 7

A friend of the landlord who is a real estate developer needs to borrow $78,000 to finish a development project. The developer is desperate for cash and offers the landlord 30%, compounded monthly, for two and a half years. Find the future value of the loan using the future value of $1 table.

Part 8

Does this loan meet the landlord's goals of low risk? How could they reduce the risk associated with this loan?

A. No, this investment is high risk and could be improved by compounding more frequently.

B.Yes, this investment is low risk.

C. No, this investment is high-risk, but cannot be improved.

D. No, this investment is high-risk and could be improved by including collateral.

Part 9

After purchasing the apartment, the landlord receives a street, sewer, and gutter assessment for $14,200 due in 2 years. How much would the landlord have to invest today in a CD paying 2%, compounded semiannually, to fully pay the assessment in 2 years?