You have 100,000$ saving that is very important for you. You want to invest it for the next two years. You don’t know if
Posted: Fri May 20, 2022 6:13 am
You have 100,000$ saving that is very important for you. You
want to invest it for the next two years. You don’t know if it is
better to invest in stock or buy a home.
If you invest in stock, for the first year there is 40% chance
you earn 20% and 60% chance that you lose 5% . For the second
year there is 30% chance of 30% increase and 70% chance of 10%
increase in the market.
If you buy a home, for the first year, the value of your home
will go up 5% by the chance of 20% and it may go down 10% by chance
of 80%. For the second year, there is 50% chance that the value of
home goes up 15% and 50% chance that the home prices go down 20%.
(Hint: assume we took care of all the costs related to home in the
value calculation)
Use the NPV methodology to see which option is better for you
for the next two years?
want to invest it for the next two years. You don’t know if it is
better to invest in stock or buy a home.
If you invest in stock, for the first year there is 40% chance
you earn 20% and 60% chance that you lose 5% . For the second
year there is 30% chance of 30% increase and 70% chance of 10%
increase in the market.
If you buy a home, for the first year, the value of your home
will go up 5% by the chance of 20% and it may go down 10% by chance
of 80%. For the second year, there is 50% chance that the value of
home goes up 15% and 50% chance that the home prices go down 20%.
(Hint: assume we took care of all the costs related to home in the
value calculation)
Use the NPV methodology to see which option is better for you
for the next two years?