Question
You have bought a property and have an option on how you can pay for the purchase. Using a required rate of return of 12%
You have bought a property and have an option on how you can pay for the purchase. Using a required rate of return of 12% per annum you must rank the order in which you would pay for the property from cheapest to most expensive (costliest). Show workings (HINT: You need to discount each option i- vi back to time zero using compound interest and annuity formulae). The options are:
i. $200,000 paid now
ii. $50,000 per annum paid every year for 4 years with the first payment now
iii. $47,500 per annum for 6 years with the first payment in 1 (one) years times
iv. $20,000 now and $20,000 every 6 months for 8 years
v. $200,000 at the end of the fifth year and $250,000 at the end of the tenth (10th) year
vi. A $4,000 deposit paid now plus $20,000 paid forever from the rental of the property. The first $20,000 is received at the end of the year.
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