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Using Finance Formulas to find the best value of houses

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  1. Nov 6, 2012 #1
    1. The problem statement, all variables and given/known data
    House one is going for 250.000 in the suburb and has a new power plant being built and also has a decrease in crime. House two is also 250.000 in city has an increase crime rate but has a new school being built. What house will be the best value in a 10 year span if you buy the house in full now?


    2. Relevant equations
    Formula Future Value of Compound Interest: A=p(1+i)^n


    3. The attempt at a solution
    House one increasing by .02 each year due to the decrease in crime: A=250.000(1+.02/1)^10 = 304.748605 - 250.000 = [54.748605] increase

    House one also is decrease in value by .04 each year due to the new power plant: A=250.000(1-.04/1)^10 = 166.208159 - 250.000 = 83.791841 decrease

    Altogether: 250.000+54.748605-83.791841 = 220.956764 --> value at the end of a ten year span.


    House two increasing by .05 due to a new school being built: A=250.000(1+.05/1)^10 = 407.2236567 - 250.000 = [157.2236567] increase

    House two also has a decrease due to crime rates on the rise: A=250.000(1-.07/1)^10 = 120.9955768 - 250.000 = [129.0044232] decrease

    Altogether: 250.000+157.2236567-129.0044232 = 278.2192335

    Thus house two is the best value in ten years.


    Ok after that everything is fine. My questions are...How would i set up mortgage payments for each of the two houses. Also how would i set up the interest rate i will you get for each house? How much will would i own of each house (equity) in the 10 years?

    Thank you
     
  2. jcsd
  3. Nov 7, 2012 #2

    HallsofIvy

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    Staff Emeritus
    Science Advisor

    I'm confused by the question. The future value of the house may affect the price and interest rate you are willing to pay but they do not determine what interest rates will be offered.
     
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