Joseph Is Considering Purchasing a Condo

question 351

True/False

Joseph is considering purchasing a condo. He has the option of buying one in Midtown with a
present value of $150,000 or one in downtown with a future value of $200,000. If the current
market interest rate is 5 percent and he wants to buy the home with the highest future value in 5
years, he should buy the condo in downtown.

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Definitions:

Financial Leverage

The use of borrowed money (debt) to finance the acquisition of assets, with the expectation that the profits will be greater than the interest payable.

Tax Deductible

Refers to certain expenses that can be subtracted from income to reduce the total taxable income.

Capital Gains

Profit earned from the sale of assets like stocks or real estate, where the sale price exceeds the purchase price.

Ordinary Income

Income earned from standard operations of a business or through wages, as opposed to capital gains or investment income.