Question

If a landowner purchased a vacant lot six years ago for $25,000, assuming no income or holding costs during the interim period, what price would the landowner need to receive today to yield a 10% annual return on the land investment?

a. $40,262.75.
b. $41,132.72.
c. $44,289.03.
d. $64,843.563.

Answer 1

c. $44,289.03

Step-by-step explanation:

Given that: present value = $25000, rate = 10%, n = 6 years. Then the future value can be determined by:

FV = PV
`(1+r)^(n)`

where: FV is the future value, PV is the present value, r is the rate and n is the number of years.

So that:

FV = 25000
`(1 + 0.1)^(6)`

= 25000
`(1.1)^(6)`

= 25000 x 1.771561

= 44289.025

FV = 44289.03

The price that the landowner would receive today is $44,289.03.