Question

7.1: The commercial building that you purchase for $680,000 gains 12% in value, compounded, during each of the first five years of ownership. What is it worth at the end of 5 years, and how much has it appreciated since purchase, to the nearest whole dollar?

7.2: You sell your building for $1,200,000 just in time to miss a drop in the market. The value under the new buyer drops 30% within a short time. By what percentage does the value need to increase to bounce back to $1,200,000?

Answer 1

Solution

Solution

7.1

Future value of building=Initial value*(1+rate of gain)^number of years

Future value of building=680000*(1+.12)^5

=$1198392.34(Worth at end of 5 years)

Amount by which it has appreciated=1198392.34-680000

=$518392.34

7.2

value under new buyer=Buying price for new buyer*(1-%Drop in value under new buyer)

value under new buyer=1200000*(1-.3)

=840000

Percentage increase in value required to increase the value to 1200000=((1200000-Value under new buyer)/Value under new buyer)*100

=((1200000-840000)/840000)*100

Percentage increase in value required to increase the value to 1200000=42.86%

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