Assume you buy a house for $660,000 and have $132,000 as a down payment. Your mortgage rate is 3 percent APR compounded semi-annually and you amortize the mortgage over 25 years with monthly payments. You will assume that you could have earned 5 percent EAR on the down payment (opportunity cost), your marginal income tax rate is 40 percent, real estate fees are 4 percent +HST, and property taxes will be $6,600 annually for this calculation. Ignore maintenance costs. a. What is the true return on your investment if you sell it in 6 years for $1,040,000? (Do not round your intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.) Return on Investment % b. What is an approximate annualized rate of return on your investment? (Do not round your intermediate calculations. Round your answer to 3 decimal places. Omit the "%" sign in your response.) Annualized Rate of Return %
Assume you buy a house for $660,000 and have $132,000 as a down payment. Your mortgage rate is 3 percent APR compounded semi-annually and you amortize the mortgage over 25 years with monthly payments. You will assume that you could have earned 5 percent EAR on the down payment (opportunity cost), your marginal income tax rate is 40 percent, real estate fees are 4 percent +HST, and property taxes will be $6,600 annually for this calculation. Ignore maintenance costs. a. What is the true return on your investment if you sell it in 6 years for $1,040,000? (Do not round your intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.) Return on Investment % b. What is an approximate annualized rate of return on your investment? (Do not round your intermediate calculations. Round your answer to 3 decimal places. Omit the "%" sign in your response.) Annualized Rate of Return %
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 34P
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Transcribed Image Text:Assume you buy a house for $660,000 and have $132,000 as a down payment. Your mortgage rate is 3 percent APR compounded
semi-annually and you amortize the mortgage over 25 years with monthly payments. You will assume that you could have earned 5
percent EAR on the down payment (opportunity cost), your marginal income tax rate is 40 percent, real estate fees are 4 percent +HST,
and property taxes will be $6,600 annually for this calculation. Ignore maintenance costs.
a. What is the true return on your investment if you sell it in 6 years for $1,040,000? (Do not round your intermediate calculations.
Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Return on Investment
%
b. What is an approximate annualized rate of return on your investment? (Do not round your intermediate calculations. Round your
answer to 3 decimal places. Omit the "%" sign in your response.)
Annualized Rate of Return
%
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