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 owns the house for 30 years. Lucy buys the home with an 80% LTV IO mortgage. The interest rate is irrelevant because the cost of ownership net tax shield is equal to rent. What is Lucy's annualized IRR?
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 owns the house for 30 years. Lucy buys the home with an 80% LTV IO mortgage. The interest rate is irrelevant because the cost of ownership net tax shield is equal to rent. What is Lucy's annualized IRR?
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 25PROB
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![QUESTION 9
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 owns the house for 30 years.
Lucy buys the home with an 80% LTV IO mortgage. The interest rate is irrelevant because the cost of ownership net tax shield is equal to rent. What is Lucy's
annualized IRR?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fecfe598f-5115-495a-994e-2672f72d790b%2F822b9973-7813-4d3b-8d5f-daf1ed528e14%2Fs03y3hp_processed.jpeg&w=3840&q=75)
Transcribed Image Text:QUESTION 9
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 owns the house for 30 years.
Lucy buys the home with an 80% LTV IO mortgage. The interest rate is irrelevant because the cost of ownership net tax shield is equal to rent. What is Lucy's
annualized IRR?
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