Answer:
See Below
Explanation:
If the present value of the lot is GREATER than the asking price of $7000, then John should buy it. Lets use the formula for present value to figure out the answer. The formula is:
[tex]P=\frac{F}{(1+r)^t}[/tex]
Where
P is the present value
F is the future value (which is 15000)
r is the yearly interest (which is 10% or 10/100 = 0.1)
t is the time in years, (which is 10 years)
Substituting, we get our answer:
[tex]P=\frac{F}{(1+r)^t}\\P=\frac{15000}{(1+0.1)^{10}}\\P=\frac{15000}{(1.1)^{10}}\\P=5783[/tex]
The present value is LESS THAN the current asking price, so John should not buy it.
