Assignment
This assignment applies time value of money concepts to a realistic setting requiring TVM calculations. The course resources will show you the TVM Formulas which gives you a good base of knowledge to know how to interpret/apply the calculations to the data. BUT, I encourage you to use either the Excel functions or better, a financial calculator or specific apps to complete the calculations.
IMPORTANT: You must show your calculations in order to earn credit. 1) the formula then the data in the formula and the calculation, the excel function inputs, the financial calculator inputs or the app inputs.
Every TVM problem will solve for one of these variables:
a) N=number of periods (years, months, days)
b) PMT=periodic payments
c) FV=future value
d) PV=present value
e) I/yr or rate=interest/discount rate
You need to show the inputs for each variable. The challenge of all TVM problems is the ability to interpret the data.
Read the case/scenario below and answer all of the questions. Also, respond to two of your peers about the concepts of TVM rather than the answers.
Before there was Paris Hilton, there was Consuelo Vanderbilt Balsan - a Gilded Age heiress and socialite, renowned for her beauty and wealth. Now Ms. Balsan's onetime Hamptons home is slated to hit the market priced at $28 million with Tim Davis of the Corcoran Group.
Located on Ox Pasture Road in Southampton, the shingle-style home was built around 1900 and is known as "Gardenside" or "Cara-Mia". Ms. Balsan, the great-granddaughter of railroad magnate Cornelius Vanderbilt, owned the house until her death in 1964.
According to public records, the estate is owned by Robert G. Goldstein, executive vice president and president of global gaming operations at Las Vegas Sands Corp, and his wife Sheryl, who purchased the house in 2007 for $17.4 million. (The Wall Street Journal, August 1, 2014)
NOTE: All periods are at the end of the particular year and the end date is 2014, the year the article was published.
A. Calculate the annual compound growth rate of the house price during the period when the house was owned by Robert G. Goldstein (since 2007). (Round the number of years to the whole number).
B. Assume that the growth rate you calculated in question A remains the same for the next 20 years. Calculate the price of the house in 20 years.
C. Assume the growth rate that you calculated in A prevailed since 1900. Calculate the price of the house in 1900.
D. Assume the growth rate that you calculated in A prevailed since 1900. Which price was paid for the house in 1964?
E. You were using the time value of money concept to answer the question C. What is the time point 0 is this problem?