EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 12, Problem 3CP
Summary Introduction
To determine:
The principle of behavioural finance that is exhibited by the statement" Maclin has surfed the internet to identify the outlook associated with the housing market for the next 5 years to come. According to him, this is the finest time in which one can purchase a house"
Introduction:
Overconfidence refers to the behavioral bias which stand dangerous, especially in the financial markets. It was assumed that overconfidence does not impact the investor, however the more the investor is overconfidence the more it will impact. In other words, it depicts underestimation of risk, overestimation of knowledge and exaggerating the ability for controlling the events.
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Anne Murray is planning to buy a rental property, in addition to the family home she and Henry own. She is considering a property in Bristol costing £210,000. She has savings of £85,000 which she will use as a deposit but will need to borrow the remaining amount for the purchase. She has had a fixed-rate mortgage agreed in principle by Royal East Bank, for which she will be charged 4.75% interest.
She wants to know what income she might expect to get on her investment. Local agents have estimated that the monthly rent may be £1,450 per month, with agent’s fees for managing the property being charged at 5% of the rent.
Provide Anne with an estimate of the relevant costs of renting the property and the net rental income that she might expect to get. Anne has estimates for some of the other costs she will incur as follows:
Repairs and maintenance per year
£700
Property insurance per year
£395
Mortgage arrangement fee
£1950…
Anne Murray is planning to buy a rental property, in addition to the family home she and Henry own. She is considering a property in Bristol costing £210,000. She has savings of £85,000 which she will use as a deposit but will need to borrow the remaining amount for the purchase. She has had a fixed-rate mortgage agreed in principle by Royal East Bank, for which she will be charged 4.75% interest.
She wants to know what income she might expect to get on her investment. Local agents have estimated that the monthly rent may be £1,450 per month, with agent’s fees for managing the property being charged at 5% of the rent.
Provide Anne with an estimate of the relevant costs of renting the property and the net rental income that she might expect to get. Anne has estimates for some of the other costs she will incur as follows:
Repairs and maintenance per year
£700
Property insurance per year
£395
Mortgage arrangement fee
£1950…
Ben emailed Jennifer enquiring if she is willing to sell her upscale home in Manhattan to him for US$2 million. Ben is seeking to add additional real estate, to diversify his investment portfolio and is aware that Jennifer sits on a prime property in Manhattan. Ben further alluded in his email to Jennifer, that if she agrees, email to him the price she is willing to sell.
Within twenty minutes, Jennifer emailed Ben, stating “The lowest price she is willing to accept for her home is US$3 million”.
Ben responded immediately, stating that he agrees to purchase Jennifer’s home for US$3 million. He was of the opinion that even at US$3 million, it was still a good investment deal.
The next day Ben’s attorney contacted Jennifer to arrange for the transfer of the property, which left Jennifer in shock. She pointed out to Ben’s attorney that she had no agreement with Ben to sell.
Advised Jennifer on this matter.
Chapter 12 Solutions
EBK INVESTMENTS
Ch. 12 - Prob. 1PSCh. 12 - Prob. 2PSCh. 12 - Prob. 3PSCh. 12 - Prob. 4PSCh. 12 - Prob. 5PSCh. 12 - Prob. 6PSCh. 12 - Prob. 7PSCh. 12 - Prob. 8PSCh. 12 - Prob. 9PSCh. 12 - Prob. 10PS
Ch. 12 - Prob. 11PSCh. 12 - Prob. 12PSCh. 12 - Prob. 13PSCh. 12 - Prob. 14PSCh. 12 - Prob. 15PSCh. 12 - Prob. 16PSCh. 12 - Prob. 17PSCh. 12 - Prob. 18PSCh. 12 - Prob. 19PSCh. 12 - Prob. 20PSCh. 12 - Prob. 21PSCh. 12 - Prob. 22PSCh. 12 - Prob. 23PSCh. 12 - Prob. 24PSCh. 12 - Prob. 25PSCh. 12 - Prob. 1CPCh. 12 - Prob. 2CPCh. 12 - Prob. 3CPCh. 12 - Prob. 4CPCh. 12 - Prob. 5CP
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