A lot was purchased at 4, 000,000 Php and a house was built worth 2,000,000

Economics Nov 04, 2020

A lot was purchased at 4, 000,000 Php and a house was built worth 2,000,000. 10years later at the end of the, useful life of the house, the house and lot was sold off at a price of 11,000,000. Land value increased by a steady 10% per year What would have been the worth of the house and lot if it was sold 5 years earlier.

Expert Solution

Lot price = 4,000,000

House built was worth 2,000,000

It was sold for 11,000,000 at the end of 10 years where lot was was growing for 10% a year which is 159.37% (1.1^¹⁰) in 10 years. Thus, we can say that lot price was increased from 4,000,000 to 4,000,000 * 1.5937 = 10,374,969.84 while value of house built decreased from 2,000,000 to 625,030.16 which is a decline of 11% per year

If the house is sold after 5 years from now, its price must have been 4,000,000 * 1.1^⁵ + 2,000,000 * 0.89^⁵ = 7,558,851.89

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