Question

[Related to Solved Problem 11.1] Suppose that you intend to buy a house for $210.000 Calculate your leverage ratio for this investment in each of the following situations: You pay the entire S210,000 price in cash. Leverage ratio is equal to You make a 25% down payment Leverage ratio is equal to You make a 10% down payment Leverage ratio is equal to You make a 5% down payment Leverage ratio is equal to Now assume that at the end of the year, the price of the house has risen to $231.000 Calculate the return on your investment for each of the situations isted above. In your calculations, loan and the value of any housing services you receive from owning your home a. You pay the entire 5210.000 price in cash Return on investment is equal to Enter your answer in each of the answer boxes

Answer 1

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PV, FV, ANNUITY (Autosaved) - Microsoft Excel (Product Activation Failed) Review View Add-Ins Formulas Data - 2x 11 A A = = = V General Wrap Text Merge & Center - A E S E E $ % & ... Insert Delete Format File Home Insert Page Layout % Cut Calibri Ea Copy Paste BI U D Format Painter Clipboard Font CW294 CV Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Alignment Number Cells CW CX DA DE 280 281 282 LEVERAGE RATIO TOTAL DEBT/TOTAL ASSETS 283 284 285 ENTIRE 210000 IN CASH SO NO DEBT TOTAL DEBT = 0 TOTAL ASSETS = 210000 286 287 288 289 290 LEVERAGE RATIO = 0/210000 = 0.00 291 292 25% DOWN PAYMENT SO LOAN = 210000 X 75% = 157500 TOTAL DEBT = 157500 TOTAL ASSETS = 210000 293 294 295 296 LEVERAGE RATIO = 157500/210000 = 0.75 297 298 299 W N pv, fv, annuity CAP STRU VALUE profit margin loan with points LOCK BOX DILUTION DOLLAR COST AVG EXPONPER APR CPI ear FVA 0 0 LOAN OPTIONS ferences pva 52 BO 53 120% Rea - ELEB * QENG 08-11-2019

PV, FV, ANNUITY (Autosaved) - Microsoft Excel (Product Activation Failed) Review View Add-Ins - 2x Σ AutoSum : A = = Dr Wrap Text General File Home Insert Page Layout Formulas Data % Cut Calibri 11AA = Ea Copy Paste B I Format Painter U D- A E Clipboard Font CY316 S E E Merge & Center - $ % & ... Conditional Format Formatting as Table Styles Cell Styles Insert Delete Format Fill 2 Clear Sort & Filter Editing Find & Select Alignment Number Cells cv cw cx Formula Bar CY D A DA 10% DOWN PAYMENT SO LOAN = 210000 X 90% = 189000 TOTAL DEBT = 189000 TOTAL ASSETS = 210000 297 298 299 300 301 302 303 304 305 306 307 308 309 LEVERAGE RATIO = 189000/210000 = 0.90 5% DOWN PAYMENT SO LOAN = 210000 X 95% = 199500 TOTAL DEBT = 199500 TOTAL ASSETS = 210000 310 LEVERAGE RATIO = 199500/210000 = 0.95 311 312 313 314 315 316 317 W N pv, fv, annuity CAP STRU VALUE profit margin loan with points LOCK BOX DILUTION DOLLAR COST AVG EXPONPER APR CPI ear FVA 0 0 LOAN OPTIONS ferences pva 52 BO 53 120% Rea - DE * ENG 08-11-2019

PV, FV, ANNUITY (Autosaved) - Microsoft Excel (Product Activation Failed) Review View Add-Ins - 2x Σ AutoSum : A = = Dr General Wrap Text Merce Merge & Center - Center, E E $ $ % % , .0 .00 :.: Insert Delete Format File Home Insert Page Layout Formulas Data % Cut Calibri 11AA = Ea Copy Paste BI Format Painter U E D- DA Clipboard Font E CZ313 CV CW Conditional Format Formatting as Table Styles Cell Styles Fill 2 Clear Sort & Find & Filter Select Editing Alignment Number Cells CY DA DA 313 CX RATE OF RETURN ON INVESTMENT 314 315 PRICE OF HOUSE AFTER A YEAR =231000 INCREASE IN PRICE = 231000 - 210000 = 21000 316 317 318 319 RATE OF RETURN = RATE OF RETURN = NO DEBT, TOTAL EQUITY = 210000 INCREASE IN PRICE/TOTAL EQUITY 21000/210000 = 10% 320 321 322 323 324 325 LOAN AMOUNT = TOTAL ASSETS = TOTAL EQUITY = RATE OF RETURN = 157500 210000 52500 21000/52500 = 40% 326 327 328 329 330 331 332 333 LOAN AMOUNT = TOTAL ASSETS = TOTAL EQUITY = RATE OF RETURN = 189000 210000 21000 21000/21000 = 100% W N pv, fv, annuity CAP STRU VALUE profit margin loan with points LOCK BOX DILUTION DOLLAR COST AVG EXPONPER APR CPI ear FVA 0 0 LOAN OPTIONS ferences pva 52 BO 53 120% Rea - ELEB * * OENG 08-11-2019

- 2x AutoSum - A Fill 2 Clear Sort & Filter Editing Find & Select Cells Formula Bar DA DA PV, FV, ANNUITY (Autosaved) - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri -11AA = = = Dr Wrap Text General Ea Copy Paste Format Painter B I U B- A Merge & Center - $ -% . Formatting as Table Styles Clipboard Font Alignment Number Styles CV333 CV CW CX 333 334 335 LOAN AMOUNT = 199500 336 TOTAL ASSETS = 210000 337 TOTAL EQUITY = 10500 RATE OF RETURN = 21000/10500 = 200% 339 340 341 338 342 343 344 345 346 347 348 349 350 351 352 353 profit margin loan with points LOCK BOX DILUTION DOLLAR COST AVG EXPONPER APR CPI ear FVA 1 pva s2 30 BO 120% Red ferences - ELEB * * OENG 08-11-2019