Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Ella bought a residential investment property in Cleveland for $200,000. Five years later she spent $250,000 on renovations and then sold the property for $1,200,000. The tax code required Ella to pay a capital gain tax of 15% on her net profit (net profit = sale price - purchase price - renovation costs). If the inflation rate for the past 5 years has been 5% annually, compute the after-tax real rate of return on Ella's investment. Choose your final answer from below while still showing your work.
A. 33.17%
B. 28.13%
C. 26.83%
D. 31.84%
Transcribed Image Text:Ella bought a residential investment property in Cleveland for $200,000. Five
years later she spent $250,000 on renovations and then sold the property for
$1,200,000. The tax code required Ella to pay a capital gain tax of 15% on her
net profit (net profit
purchase price - renovation costs). If the
inflation rate for the past 5 years has been 5% annually, compute the after-tax
real rate of return on Ella's investment. Choose your final answer from below
while still showing your work.
sale price
A. 33.17%
B. 28.13%
=
-
C. 26.83%
D. 31.84%
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