You Inherited a Run-Down House in Chicago

question 68

Multiple Choice

You inherited a run-down house in Chicago. There is an active market in properties of this type, and similar properties currently sell for $100,000. If rented, the property can deliver cash returns of $12,000 per year forever. If the appropriate discount rate is 15 percent, how much is the house worth?

• A)$80,000
• B)$100,000
• C)$150,000
• D)$180,000

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Definitions:

Department of Justice

The federal executive department of the U.S. government responsible for the enforcement of the law and administration of justice.

Federal Trade Commission

A federal agency established to protect consumers and promote competition by preventing anticompetitive, deceptive, and unfair business practices.

Price-Fixing

An illegal agreement among competitors to set prices at a certain level, rather than letting them be determined naturally by supply and demand.

Economic Efficiency

A state in which resources are allocated in a way that maximizes the production of goods and services at the lowest cost, while achieving the highest possible welfare or utility.