Compound Annual Growth Rate
Formula= Ending value (1/n)
Beginning value -1
= $28,000,000 (1/7)
$17,400,000 -1
= 7.03%
2. Assume that the growth rate you calculated in question #1 remains the same for the next 20 years. Calculate the price of the house in 20 years.
Price of the house after 20 years
Price in 2034= present value*((1+r)^20
= 28,000,000*((1+.0703)^20
=$ 108,960,362.60
3. Assume the growth rate that you calculated in #1 prevailed since 1900. Calculate the price of the house in 1900.
Price of the house in 1900= price in 2014 = X (1+.0703)^(2014-1900)
=$28,000,000/(1+0.613)^(114)
=$12,120.71
4. Assume the growth rate that you calculated in #1 prevailed since 1900. Which price was paid for the house in 1964?
Price in 1964=price in price in 2014 = X (1+.0703)^( 1964-1900)
=$28,000,000/(1+.0703))^(64)
= $362,079.89
5. You were using the time value of money concept to answer the question #3. What is the time point 0 is this problem?
The year 1900 will be taken as t = 0 in part three. It is the base year to which we are discounting our value. Though it is in past but the year to which all the values are discounted in taken as base year therefore t =0
Eugene:
1-annual compound growth rate:
excel:formulas-financial-nper
calculation of number of years
2016-2007=9years
NPER:9
PMT:0
PV:-28(must be negative) MILLIONS
FV:17.4 MIILIONS
RATE = 0.0514X100=5.14%
2-PRICE OF THE HOUSE IN 20 YEARS
EXCEL: FORMULAS- FINANCIAL-PV
RATE:5.14%
NPER:20
FV:17.4 MILLIONS
6.38 MILLIONS
3- PRICE OF THE HOUSEIN1900
Bigricker12
week_2_classmate_responses.docx
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