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23 July, 14:23

Some time ago, Julie purchased eleven acres of land costing $15,890. Today, that land is valued at $34,686. How long has she owned this land if the price of the land has been increasing at 5 percent per year?

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  1. 23 July, 17:21
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    Julie purchased the acres 16 year ago

    Explanation:

    Imagine you are Julie at year cero about to purchase eleven acres of land. The seller tells you that in X amount of years it will value $34686 because it increases 5% each year. He also tells you that according to the Present Value formula, the eleven acres are worth today $15890.

    The formula is:

    PV=Ct/[ (1+r) ^n]

    Ct = cash flow at t time

    r = rate

    n = period of time

    To calculate how many years it will be worth $34686 you need to isolate n from the PV formula

    n=[ln (Ct/PV) ]/ln (1+r)

    n=ln (34686/15890) / ln (1+0,05)

    n=16
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