A Motel Is Converting Its Rooms into Privately Owned Condominiums

question 87

Multiple Choice

A Motel is converting its rooms into privately owned condominiums. The interest on a $4,900,000, 30-year construction loan is $100,000. What is the rate of interest? Does the rate seem unreasonable?

• A) 5.70%; reasonable
• B) 1.40%; unreasonable
• C) 4.20%; reasonable
• D) 0.07%; unreasonable

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Definitions:

Investments

Assets or items acquired with the intention of generating income or appreciation over time, including stocks, bonds, real estate, or other vehicles.

Liquidity

The simplicity of turning an asset into cash without impacting its market value.

Terminal Value

An estimate of a project's or company's value at the end of a forecast period, extending beyond the period of explicit cash flow projections.

Non-Normal Cash Flows

Cash flow patterns that don't follow a regular, predictable pattern, often encountered in investment analysis.