Lucy bought a house for $100,000. Lucy's annual cost of ownership net of tax savings is exactly equal to the annual rent she would have paid to live in the same house. The house price grows 4.5% annually (compounded annually). Suppose buying costs are 5% (of the purchase price of the house) and selling costs are 8% (of the selling price of the house). Lucy will sell the house in one year. What is Lucy's annualized IRR? (hint: it will be negative)

Lucy bought a house for $100,000. Lucy's annual cost of ownership net of tax savings is exactly equal to the annual rent she would have paid to live in the same house. The house price grows 4.5% annually (compounded annually). Suppose buying costs are 5% (of the purchase price of the house) and selling costs are 8% (of the selling price of the house). Lucy will sell the house in one year. What is Lucy's annualized IRR? (hint: it will be negative)

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

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