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Future value.  A speculator has purchased land along the southern Oregon coast. He has taken a...

Future value.  A speculator has purchased land along the southern Oregon coast. He has taken a loan with the​ end-of-year payments of ​$7,400 for 9 years. The loan rate is 4​%. At the end of 9 ​years, he believes that he can sell the land for ​$70,000. If he is correct on the future​ price, did he make a wise​ investment? What is the future value of the loan 9 years from​ now? ​$___  ​(Round to the nearest​ cent.)

If he is right on the future​ price, did he make a wise​ investment?  ​(Select the best​ response.)

A. No. He will encounter a loss because the value of the land is less than the future value of the loan.

B. Yes. He will make a profit because the value of the land is less than the future value of the loan.

C. No. He will encounter a loss because the value of the land is greater than the future value of the loan.

D. Yes. He will make a profit because the value of the land is greater than the future value of the loan.

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Answer #1

Information provided:

Yearly payment= $7,400

Time= 9 years

Interest rate= 4%

The future value is calculated by entering the below in a financial calculator:

PMT= 8,000

N= 11

I/Y= 4

Press the CPT key and FV to compute the future value.

The value obtained is 74,312.69.

Therefore, the future value of the loan is $78,312.69.

Yes, he made a wise investment. He will encounter a profit because the value of the land is greater than the future value of the loan.

In case of any query, kindly comment on the solution.

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