Susan recently purchased a home for $150,000. She plans to rent it out for $1,000 per month for a year. Had the house cost $200,000 instead, her expected rate of return would have:

Question

Quizplus · Accepted Answer

To calculate the expected rate of return, we need to divide the expected annual rental income by the purchase price of the house. For the first scenario, Susan's expected rate of return is (12*$1,000/$150,000) = 8%. For the second scenario, her expected rate of return would be (12*$1,000/$200,000) = 6%. Thus, her expected rate of return would decrease by 2 percentage points if the house had cost $200,000 instead of $150,000. Therefore, the correct answer is B.

Susan Recently Purchased a Home for $150,000