You Decide to Move to the Mountains of Colorado and Want

question 3

Multiple Choice

You decide to move to the mountains of Colorado and want to know what would be a good offering price on a home,but you know you'll only own it a year.Fortunately,you are armed with the simple residential investment equation.You have the following information: the real interest rate is 4 percent;the depreciation rate of homes is 5 percent;average rent is $1,000;and you will have a 20 percent downpayment.You offer the owner,rounding to the nearest dollar,

• A)$25,000.
• B)$125,000.
• C)$4,167.
• D)$17,241.
• E)$50,000.

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Definitions:

Junk Bonds

High-yield but high-risk bonds issued by companies or entities with lower credit ratings, indicating a higher risk of default.

Zero Coupon Bonds

Pay no coupons at all, but are offered at a substantial discount below their par value and hence provide capital appreciation rather than interest income. Sometimes referred to as “stripped bonds.”

Callable Bond

A bond that can be redeemed by the issuer before its maturity date at a specified call price.

Income Bonds

Bonds that pay interest only when the issuer has sufficient earnings, providing a variable income stream based on the issuer's profitability.