K
Kchapman22
Member
Hi All,
For question 10.6 practise question in CAA module 1 textbook.
The question is: the rental price of £15000 a year increase by 1% at the end of every year (payable monthly in advance). If the potential buyer wants to receive an effective rate of return of 8%, what price should be paid for this property.
Query: I have done this question using the annuity due monthly and yearly formula and it works. However I was trying to use the formula shown in example 10.10 where we. An calculate the interest rate 'I' based on making substitution for v. Can it be explained as to why using 1.01/1.08 and calculating the price based on the interest rate achieved from the v substitution here does not give the correct answer? I tried using i^(12) here too instead of 0.08 and it didn't give the desired result. If this could be explained as to why this method cannot be used or how it can be adjusted would be handy.
Many Thanks
For question 10.6 practise question in CAA module 1 textbook.
The question is: the rental price of £15000 a year increase by 1% at the end of every year (payable monthly in advance). If the potential buyer wants to receive an effective rate of return of 8%, what price should be paid for this property.
Query: I have done this question using the annuity due monthly and yearly formula and it works. However I was trying to use the formula shown in example 10.10 where we. An calculate the interest rate 'I' based on making substitution for v. Can it be explained as to why using 1.01/1.08 and calculating the price based on the interest rate achieved from the v substitution here does not give the correct answer? I tried using i^(12) here too instead of 0.08 and it didn't give the desired result. If this could be explained as to why this method cannot be used or how it can be adjusted would be handy.
Many Thanks