Suppose you know a piece of land will be worth $1 million (real)in 2025,and the real interest rate is 5%.About how much should you be willing to pay for the land today (20150)? (Assume no taxes).

Question

Quizplus · Accepted Answer

To find the present value of the land, you use the formula for present value: PV = FV / (1 + r)^n, where PV is the present value, FV is the future value ($1 million), r is the real interest rate (5% or 0.05), and n is the number of years (2025 - 2015 = 10 years). Plugging in the values, you get PV = $1,000,000 / (1 + 0.05)^10 ≈ $610,000.

Suppose You Know a Piece of Land Will Be Worth