To determine whether the investor should make the purchase

To determine whether the investor should make the purchase based on a rate of return analysis, we need to compare the future value of the investment with the total costs incurred over the 10-year period. Let’s calculate the future value of the $85,000 investment and subtract the property taxes and insurance expenses. First, let’s calculate the future value of the $85,000 investment at 6% interest compounded annually over 10 years using the formula for compound interest: Future Value = Principal Amount * (1 + Rate)^Time Future Value = $85,000 * (1 + 0.06)^10 Future Value = $85,000 * (1.06)^10 Future Value = $85,000 * 1.790847 Future Value ≈ $152,287.95 So, after 10 years, the investment will grow to approximately $152,287.95. Now, let’s calculate the total property taxes and insurance expenses over the 10-year period: Total Expenses = Annual Expense * Time Total Expenses = $3,000 * 10Total Expenses = $, The total property taxes and insurance expenses over 10 years amount to $30,000. Now, let’s compare the future value of the investment with the total costs: Net Return = Future Value - Total Expenses Net Return = $152,287.95 - $30,000 Net Return = $122,287.95 Based on the rate of return analysis, the net return from this investment would be approximately $122,287.95. Since the expected sale price of the land after 10 years is $155,000, which is higher than the net return of $122,287.95, it appears that making the purchase would be a good investment based on a rate of return analysis. However, it’s important to note that this analysis does not consider other factors such as market conditions, potential fluctuations in property values, and any additional costs associated with owning and selling the land. Therefore, it is recommended that the investor also considers these factors before making a final decision.        

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