One year ago you bought a $1,000,000 house partly funded using a mortgage loan. The loan size was $800,000 and the other $200,000 was your wealth or 'equity' in the house asset.

The interest rate on the home loan was 4% pa.

Over the year, the house produced a net rental yield of 2% pa and a capital gain of 2.5% pa.

Assume that all cash flows (interest payments and net rental payments) were paid and received at the end of the year, and all rates are given as effective annual rates including the home loan rates.

What was the total return on your wealth over the past year?

Select one:

a. 0.4808% pa

b. 2% pa

c. 4.5% pa

d. 6.5% pa

e. 8.5% pa