Of all the types of investments Jordan could have chosen, he decided to try real estate because,
according to Jordan, \"as everyone knows, real estate never goes down\". Yea, right. Last year he
bought an apartment house in Camden, DE. (Of all the places ...) Paid $400,000. One year later
he decided to sell - for $460,000. OK during the year he did collect rent of $12,000 (assume no
other income or expenses). Given this data, what was the rate of return on this investment? (Hint:
this is NOT a time value problem).
Solution
Rate of return on Investment
= (Selling Price + Other benefits in Cash - Purchase cost) / Purchase cost
= ($460,000 + $12,000 - $400,000) / $400,000
= 18%.
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Of all the types of investments Jordan could have chosen, he decided.pdf
1. Of all the types of investments Jordan could have chosen, he decided to try real estate because,
according to Jordan, "as everyone knows, real estate never goes down". Yea, right. Last year he
bought an apartment house in Camden, DE. (Of all the places ...) Paid $400,000. One year later
he decided to sell - for $460,000. OK during the year he did collect rent of $12,000 (assume no
other income or expenses). Given this data, what was the rate of return on this investment? (Hint:
this is NOT a time value problem).
Solution
Rate of return on Investment
= (Selling Price + Other benefits in Cash - Purchase cost) / Purchase cost
= ($460,000 + $12,000 - $400,000) / $400,000
= 18%
