You are considering the purchase of a property today for $300,000. You plan to finance it with an 80 percent loan. The appreciation rate on the property value is expected to be 4 percent annually for the next three years. Required: a. Approximate the expected annual average rate of appreciation on home equity for the next three years. b. What if you now think that a $300,000 purchase price may be somewhat high and that if you pay this price, the expected appreciation rates in your house price will be as follows: year 1 = 0%, year 2 = 2%, and year 33%. Approximate the expected annual average rate of appreciation on home equity for the next three years.
You are considering the purchase of a property today for $300,000. You plan to finance it with an 80 percent loan. The appreciation rate on the property value is expected to be 4 percent annually for the next three years. Required: a. Approximate the expected annual average rate of appreciation on home equity for the next three years. b. What if you now think that a $300,000 purchase price may be somewhat high and that if you pay this price, the expected appreciation rates in your house price will be as follows: year 1 = 0%, year 2 = 2%, and year 33%. Approximate the expected annual average rate of appreciation on home equity for the next three years.
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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Transcribed Image Text:You are considering the purchase of a property today for $300,000. You plan to finance it with an 80
percent loan. The appreciation rate on the property value is expected to be 4 percent annually for the
next three years.
Required:
a. Approximate the expected annual average rate of appreciation on home equity for the next three
years.
b. What if you now think that a $300,000 purchase price may be somewhat high and that if you pay this
price, the expected appreciation rates in your house price will be as follows: year 1 = 0%, year 2 = 2%,
and year 3=3%. Approximate the expected annual average rate of appreciation on home equity for the
next three years.
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