Suppose you know a piece of land will be worth $1 million (real)in 2020,and the real interest rate is 5%.How much should you be willing to pay for the land today (2010)? (Assume no taxes).

Question

Quizplus · Accepted Answer

To find the present value of the land, you need to discount the future value of $1 million back to 2010 using the real interest rate of 5% over 10 years. The formula for present value is PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of years. Plugging in the values: PV = $1,000,000 / (1 + 0.05)^10 = $610,000.

Suppose You Know a Piece of Land Will Be Worth