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
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OA. 7.00%
OB. 1.00%
OC.4.75%
OD.4.25%
QUESTION 12
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)
Click Save and Submit to save and submit. Click Save All Answers to save all answers.
Transcribed Image Text:OA. 7.00% OB. 1.00% OC.4.75% OD.4.25% QUESTION 12 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) Click Save and Submit to save and submit. Click Save All Answers to save all answers.
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