Make a comparison between two investment choices, based on theinformation given below.
Investment opportunity one: investing in stock market. Fiveyears ago, SP500 stock index was 1312. Currently, it is 2618.97.What is the average annual rate of return of SP500 stock index inlast five years?
Investment opportunity two: Five years ago, someone used her$40,000 saving to make a down payment for a townhouse in RTP. Thehouse is a three-bedroom townhouse and sold for $200,000 when shebought it. After paying down payment, she financed the house byborrowing a 30-year mortgage. Mortgage interest rate is 3.625%.Right after closing, she rent out the house for $1,650 per month.In addition to mortgage payment and rent revenue, she listed thefollowing information so as to figure out investment return:
1. HOA fee is $75 per month and due at end of each year
2. Property tax and insurance together are 3% of house value
3. She has to pay 10% of rent revenue for an agent who managesher renting regularly
4. Her personal income tax rate is 20%. While rent revenue istaxable, the mortgage interest is tax deductiable. She has to makethe mortgage amortization table to figure out how much interest shepaid each year
5. In last five years, the market value of the house hasincreased by 3.87% per year
6. If she wants to sell the house today, the total transactioncost will be 5% of selling price Given the above information,please calculate the internal rate of return (IRR) of thisinvestment in house.
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Make a comparison between two investment choices, based on theinformation given below.
Investment opportunity one: investing in stock market. Fiveyears ago, SP500 stock index was 1312. Currently, it is 2618.97.What is the average annual rate of return of SP500 stock index inlast five years?
Investment opportunity two: Five years ago, someone used her$40,000 saving to make a down payment for a townhouse in RTP. Thehouse is a three-bedroom townhouse and sold for $200,000 when shebought it. After paying down payment, she financed the house byborrowing a 30-year mortgage. Mortgage interest rate is 3.625%.Right after closing, she rent out the house for $1,650 per month.In addition to mortgage payment and rent revenue, she listed thefollowing information so as to figure out investment return:
1. HOA fee is $75 per month and due at end of each year
2. Property tax and insurance together are 3% of house value
3. She has to pay 10% of rent revenue for an agent who managesher renting regularly
4. Her personal income tax rate is 20%. While rent revenue istaxable, the mortgage interest is tax deductiable. She has to makethe mortgage amortization table to figure out how much interest shepaid each year
5. In last five years, the market value of the house hasincreased by 3.87% per year
6. If she wants to sell the house today, the total transactioncost will be 5% of selling price Given the above information,please calculate the internal rate of return (IRR) of thisinvestment in house.
SHOW CALCULATIONS AND FORMULA USED IN EXCEL ONLY
