Pigou buys a house for $500,000, rents it for $2,000 per month for four years, and then sells it for $600,000. What is Pigou's per-year rate of return?

Question

Quizplus · Accepted Answer

Pigou's total rental income over four years is $2,000 * 12 * 4 = $96,000. The total return from selling the house is $600,000 - $500,000 = $100,000. The total return is $96,000 + $100,000 = $196,000. The per-year rate of return is ($196,000 / $500,000) / 4 = 0.098 or 9.8 percent.

Pigou Buys a House for $500,000, Rents It for $2,000