Charles is 23 years old. He recently graduated from UCA, married his high school sweetheart, and now has a 2 year old son. Sadly, Charless beloved grandfather has recently died. His grandfather left Charles $60,000. Charles has a good job and does not need the money at this time. He wants to invest it for his sons college expenses and for retirement. He is considering two active investment options and two passive investment options.

Option A:

Charles buys a rent house for $60,000 and puts the net rent (Net Operating Income, NOI) after taxes, insurance, and repair expenses into Simmons Bank. The net rent is $600/month. The after tax rate of return on the rent payments, deposited in the bank, is 3%/year, compounded monthly. Charles plans to sell the house after 15 years and add the sale proceeds to his rent account at the bank to pay for his sons college and have a nest egg started for his retirement. When Charles sells the house, he will have to pay a 20% capital gains tax. The tax is on the full value of the house (the sale amount), since the house will be fully depreciated. The inflation rate is 2.5%/year. The value of the house increases with the inflation rate. Ignore other costs associated with the purchase and sale of the house (title insurance, survey, closing fees, realtor commission, depreciation recapture taxes, etc.).

1. 10 points) What is the expected value of Option A after Charles sells the house and pays his taxes in 15 years?(Show how you calculate the value)