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?
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%