Reference no: EM133063460

Question - Nelson wants to open a small boutique hotel in 5 years' time. The building he wants to buy for this project is worth $22,000,000. He knows that he'll need a 15% down payment for the building, and he's budgeting an additional $3,000,000 for renovations and decor.

1. If Nelson can secure a high-yield investment that earns 11.7% compounded monthly, what will be his beginning-of-month deposits if he wants to open the hotel in 5 years?

To purchase the building, Nelson pays the down payment and secures a mortgage for the remaining balance at an interest rate of 2.3% compounded semi-annually for 30 years.

2. If the interest rate is constant over the 30-year term, what are the month-end payments for the mortgage? What will be the total interest paid on the hotel over the term?

When the renovations to the hotel are finished (including the name 'Rest for the Wicked' in stylish lettering on the front), Nelson is pleased to find that they were completed under-budget, costing him only $2,370,000.

3. Nelson invests the surplus in another high-yield investment that earns 15.3% compounded quarterly. How much is this investment worth in 5 years' time?

After 5 years of owning the hotel, Nelson's investment matures and he decides to use this balance to capitalize on an opportunity to open a small bed and breakfast near a golf course, the Chip Inn.

4. Nelson's contributions to the Chip Inn will amount to $40,000 per month for the first 2 years in order to help establish and market this new venture. Afterwards, they will lower to $18,000 per month. Throughout this period, Nelson's remaining funds are still held in the high-yield account. How long will this fund be able to sustain investments into the Chip Inn? Express your answer in years and months.

Decades later, several years after the mortgage on the hotel is paid off, Nelson decides to sell the boutique hotel and the bed and breakfast and retire. He wants to purchase a villa in Lombardy, Italy, and invest in a fund that will allow him to live comfortably on $60,000 at the beginning of each month in perpetuity.

5. If the retirement villa costs $5,700,000 to purchase outright (with no mortgage), and Nelson can secure an investment that earns 1.85% compounded quarterly, what is the minimum amount he can accept for the sale of the hotels?

6. If Nelson sells his hotels for $50,000,000, what will be the size of his perpetual monthly payments instead?