Of all the types of investments Henry could have chosen, he decided to try real estate because, according to Henry, \"as everyone knows, real estatenever goes down\". Yea, right. Last year he bought an apartment house in Camden, N.J. (Of all the places ...) Paid $400,000. One year later he decided to sell - for $360,000. OK during the year he did collect rent of $12,000 but that was more than offset by the $20,000 he had to pay to replace the roof (assume no other income or expenses). Given this data, what was the rate of return on this dog of an investment? (Hint: this is NOT a time value problem). *show work pleease, thnks! Solution Purchase price of House 400000 Expenditure incurred to House 20000 Cost of the House 420000 Sell Value of the House 360000 Capital Loss from House Sell -60000 Rent Collected 12000 Total Income from House -48000 Return on Investment = - 48000/420000 -0.11429 -11.43.

1. Of all the types of investments Henry could have chosen, he decided to try real estate because,
according to Henry, "as everyone knows, real estatenever goes down". Yea, right. Last year he
bought an apartment house in Camden, N.J. (Of all the places ...) Paid $400,000. One year later
he decided to sell - for $360,000. OK during the year he did collect rent of $12,000 but that was
more than offset by the $20,000 he had to pay to replace the roof (assume no other income or
expenses). Given this data, what was the rate of return on this dog of an investment? (Hint: this is
NOT a time value problem).
*show work pleease, thnks!
Solution
Purchase price of House 400000 Expenditure incurred to House 20000 Cost of the House
420000 Sell Value of the House 360000 Capital Loss from House Sell -60000 Rent
Collected 12000 Total Income from House -48000 Return on Investment = -
48000/420000 -0.11429 -11.43