The monthly income from a piece of commercial property is $1,200. Annual expenses are $3,000 for upkeep of the property and $1,000 for property taxes. The property is surrounded by a security fence that cost $4,000 to install four years ago. Required:
a. If i 8.6% per year (the MARR) is an acceptable interest rate, how much could you afford to pay now for this property if it is estimated to have a resale value of $150,000 9 years from now?
b. Let's assume that the interest rate is 5%. If the 5% interest had been a nominal interest rate, what would the corresponding effective annual interest rate have been with bi-weekly (every two weeks) compounding?

a. The amount you could afford to pay now for this property is $134,765.04.

b. Effective annual rate (EAR) = 5.12%

Explanation:

a. If i 8.6% per year (the MARR) is an acceptable interest rate, how much could you afford to pay now for this property if it is estimated to have a resale value of $150,000 9 years from now?

Step 1: Calculation of the present value of the annual net cash inflow

This can be calculated using the formula for calculating the present value of an ordinary annuity as follows:

PVAC = AC * ((1 - (1 / (1 + i))^n) / i) …………………………………. (1)

Where;

PVAC = Present value of the annual cash inflow = ?

AC = Annual net cash inflow = (Annual rent * Number of months in a year) – Annual property upkeep expense – Annual property tax = ($1,200 * 12) - $3,000 - $1,000 = $10,400

i = annual interest rate = 8.6%, or 0.086

n = number of years = 9

Substitute the values into equation (1), we have:

PVAC = $10,400 * ((1 - (1 / (1 + 0.086))^9) / 0.086) = $63,377.43

Step 2: Calculation of the present value of the resale value

This can be calculated using the formula for calculating the present value as follows:

PVRV = RV / (1 + i)^n (2)

Where;

PVRV = present value of the resale value = ?

RV = resale value = $150,000

i = annual interest rate = 8.6%, or 0.086

n = number of years = 9

Substitute the values into equation (2), we have:

PVRV = $150,000 / (1 + 0.086)^9 = $71,387.61

Step 2: Calculation of the amount you could afford to pay now for this property

PVAC = Present value of the annual cash inflow = $63,377.43

PVRV = present value of the resale value = $71,387.61

Amount you could afford to pay now = PVAC + PVRV = $63,377.43 + $71,387.61 = $134,765.04

b. Let's assume that the interest rate is 5%. If the 5% interest had been a nominal interest rate, what would the corresponding effective annual interest rate have been with bi-weekly (every two weeks) compounding?

The effective annual rate (EAR) can be calculated using the following formula:

EAR = ((1 + (i / n))^n) - 1 (3)

Where;

i = Annual nominal interest rate = 5%, or 0.05

n = Number of compounding periods in a year = Number of bi-week in a year = Number of weeks in a year / 2 = 52 / 2 = 26

Substitute the values into equation (3), we have:

EAR = ((1 + (0.05 / 26))^26) - 1 = 0.0512206204121786, or 5.12206204121786%

Rounding to 2 decimal places, we have:

EAR = 5.12%

c

explanation:

c because the item on a bank statement is also referred to as an account statement. in addition, it provides the beginning balance, ending balance, statement date, transaction date for each transaction, payee, customer name and address, statement period, the account holder's account number, and the bank's customer service number

answer; /// the above statement is (true);