are144_ps3_08-key3 - ARE 144 Eric Johnson Spring 2008...

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ARE 144 Name:________________________ Eric Johnson Student ID:____________________ Spring 2008 Problem Set #3 Due Tuesday June 10 th at the beginning of class. Trust Deed Analysis While perusing Craig’s List one night, Ellen found a deed for sale by a man and a woman in the Napa Valley. The deed is for a second loan that they made so their friends could afford to buy a home and wine vineyard together. Even though the property was sold as one asset, it technically has two (the house and vineyard). The second is backed by the vineyard which makes it a little more risky than using a house as collateral (since the vineyard can die and quit producing fruit), but suffices since the loan is for a relatively small amount. Currently, the couple needs some cash, quick, because they have twins on the way. They decide to sell the loan for its current market value of $52,000, hoping to get as much value out of the loan as possible. The loan is throwing off monthly payments of $937.33 and yields 9% per year. The loan will be worth $0 (Future Value = $0) at the end of the loan which is 6 years from today. A.) How much would Ellen pay for this deed if her expected rate of return is 15%, 20%, and
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This note was uploaded on 06/29/2009 for the course ARE 144 taught by Professor Johnson,e during the Spring '08 term at UC Davis.

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are144_ps3_08-key3 - ARE 144 Eric Johnson Spring 2008...

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