Lucy bought a house for $100,000. Lucy's annual cost of ownership net of tax savings is exactly equal to the annual rent she would have paid to live in the same house. The house price grows 4.5% annually (compounded annually). Suppose buying costs are 5% (of the purchase price of the house) and selling costs are 8% (of the selling price of the house). Lucy owns the house for 30 years. Lucy buys the home with an 80% LTV IO mortgage. The interest rate is irrelevant because the cost of ownership net tax shield is equal to rent. What is Lucy's annualized IRR?

Lucy bought a house for $100,000. Lucy's annual cost of ownership net of tax savings is exactly equal to the annual rent she would have paid to live in the same house. The house price grows 4.5% annually (compounded annually). Suppose buying costs are 5% (of the purchase price of the house) and selling costs are 8% (of the selling price of the house). Lucy owns the house for 30 years. Lucy buys the home with an 80% LTV IO mortgage. The interest rate is irrelevant because the cost of ownership net tax shield is equal to rent. What is Lucy's annualized IRR?

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money

Section: Chapter Questions

Problem 9.12AMCP

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