A house which you could rent for $10000 a year and sell for $110000 a year from now, can be purchased for $100000. What are rate of return on this house, the consumption rate, and the investment rate of return?

Answer 1

The rate of return on the house can be calculated by dividing the gain on investment by the initial investment.

Gain on investment = Selling price - Purchase price = $110000 - $100000 = $10000
Rate of return = (Gain on investment / Initial investment) * 100% = ($10000 / $100000) * 100% = 10%

The consumption rate can be calculated by dividing the annual rent by the initial investment.

Consumption rate = (Annual rent / Initial investment) * 100% = ($10000 / $100000) * 100% = 10%

The investment rate of return can be calculated using the following formula:

Investment rate of return = Rate of return - Consumption rate
Investment rate of return = 10% - 10% = 0%