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 bossbut it was time to start thinking toward retirement. The real estate investments that he had made over the last 15 years had paid off handsomely. After selling a duplex 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 a 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. 1. Seth read an article in the local newspaper stating the real estate in the area had appreciated by 5% per year over the last 30 years. Assuming the article is correct, what would the future value of the $250,000 apartment be in 10 years? Initial Investment (PV) Quoted Rate Compounding Frequency Number of compoundings (m) Quoted Rate divided by m = RATE Number of Years NPER (Num. of years * m) Ending Amount (FV) Choose one For Quarterly, type 4; for semiannually, type 2; for ann 2. Seth'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 Seth invests the $100,000, how much more money will he have in the second bank after one year, due to the daily compounding? Current Bank Semiannually Competitor Bank Daily Initial Investment (PV) Quoted Rate Compounding Frequency Number of compoundings (m) Quoted Rate divided by m = RATE Number of Years NPER (Num. of years * m) Ending Amount (FV) Choose one For Quarterly, type 4; for semiann Difference in FV =D36-C36 3. After looking at the results from questions 1 and 2, Seth 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 Seth's $100,000 investment using a 10%, 15%, and 20% return compounded semiannually for 10 years. Will any of these rates of return allow him to accomplish his goal of reaching $1 million by age 55? 10% Initial Investment (PV) Quoted Rate 15% 20% Compounding Frequency Number of compoundings (m) Quoted Rate divided by m = RATE Number of Years NPER (Num. of years * m) Ending Amount (FV) Plus: Apartment Value Total FV Semiannually Semiannually Semiannually $400,000 $400,000 $400,000 Which rate of return allows him to accomplish his goal of reaching $1 million? 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 2.5 years. Find the future value of the loan. Initial Investment (PV) Quoted Rate Compounding Frequency Number of compoundings (m) Quoted Rate divided by m = RATE Number of Years NPER (Num. of years * m) Ending Amount (FV) Choose one For Quarterly, type 4; for semiannually, type 2; for ann 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 ye Future Value Needed (FV) Quoted Rate Compounding Frequency Number of compoundings (m) Quoted Rate divided by m = RATE Number of Years NPER (Num. of years * m) Amount Invested Now (PV) Choose one For Quarterly, type 4; for semiannually, type 2; for ann d retirement. fter selling a only 10 years re. Fortunately, partment. The Seth figured he by 5% per year 000 apartment emiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 much more arterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 te of deposit eed be worth %, and 20% return h his goal of =FV + Apartment Value Choose one ment project. emiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 500 due in 2 years. pay the assessment in 2 years? emiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365