Question

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.

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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