Sam bought a rental property for 500,000 five years ago. He sold the property this year for $2,200,000 and spent $343,335 fixing it up before selling the property. If the inflation rate for the past 5 years has been steady at 5% annually.

Sam bought a rental property for 500,000 five years ago. He sold the property this year for $2,200,000 and spent $343,335 fixing it up before selling the property. If the inflation rate for the past 5 years has been steady at 5% annually.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Sam bought a rental property for 500,000 five years ago. He sold the property this year for
$2,200,000 and spent $343,335 fixing it up before selling the property. If the inflation rate for the
past 5 years has been steady at 5% annually.
a. What is the actual interest rate of this investment?
b. What is the real interest rate Sam earned?

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