You purchased a house for $450,000 and incurred additional costs of $4,000 at the time of the purchase. Because of a job transfer, you were forced to sell the house later for $400,000. The
Selling broker charged a 6% commission, and you estimated that other costs associated with
The sale, both direct and indirect, amounted to $10,000. What was your rate of return on this
Investment?

Question

Quizplus · Accepted Answer

Initial cost = $450,000 + $4,000 = $454,000
Selling price = $400,000
Commission = 6% of $400,000 = $24,000
Other costs = $10,000
Total costs = $454,000 + $24,000 + $10,000 = $488,000
Proceeds from the sale = $400,000 - $24,000 - $10,000 = $366,000
Rate of return = ((Proceeds - Total costs) / Initial cost) x 100
= (($366,000 - $488,000) / $454,000) x 100
= -19.4%
Therefore, the best choice is A as it gives the correct rate of return on the investment. The total cost of the purchase was $450,000 + $4,000 = $454,000.
The total cost of the sale was $10,000 + ($400,000 x 6%) = $34,000.
The net proceeds from the sale were $400,000 - $34,000 = $366,000.
The return on investment can be calculated as follows:
ROI = (Net Proceeds - Total Cost) / Total Cost
ROI = ($366,000 - $454,000) / $454,000
ROI = -0.194 or -19.4%
Therefore, the answer is A) -19.4%.

You Purchased a House for $450,000 and Incurred Additional Costs