For this house transaction cost question, you first need to assume a proper discount rate for the
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For this house transaction cost question, you first need to assume a proper discount rate for the
$4,000/month rent. At a 7%effective interest rate per year, your true monthly rate is 1.071/12 − 1 ≈ 0.5654%
per month). A reasonable assumption to value the rent stream is as a 1-year annuity, whose value is
$4,000/r . [1 − 1/(1 + r)12] ≈ $46,281 today. Therefore,
Solve this to x ≈ $1,115,031, so your capital appreciation must be 11.5% per annum for this project to be zero NPV for you.
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