Ron-Jing is starting her undergraduate studies in September and needs a place to live over the next four years. Her friend, Nabil, told her about his plan to buy a house and rent out part of it. She thinks it may be a good idea to buy a house too, as long as she can get a reasonable rental income and can sell the house for a good price in four years.
A fair-sized house, located a 15-minute walk from the university, costs S120 000. She estimates that the net rental income, after expenses, will be $1050 per month, which seems reasonable. $he is, however, concerned about the resale value. $he figures that the resale value will depend on the housing market in four years. She estimates the possible resale values and their likelihoods as shown in the table below.
Using the Monte Carlo method, simulate 100 trials of the present worth of investing in the house. Use a MARR of 12%. Is this a viable investment for her?
|
Resale Value($)
|
Probability
|
|
$100,000
|
0.2
|
|
110,000
|
0.2
|
|
120,000
|
0.2
|
|
130,000
|
0.2
|
|
140,000
|
0.2
|