Mr. Darden is selling his house for $200,000. He bought it for $164,000 ten years ago. What is the annual return on his investment?

Question

BlackTom AI · Accepted Answer

The question asks for the annual return on investment given: purchase price $164,000 ten years ago, sale price $200,000 now.
First, determine the total gain: 200,000 − 164,000 = 36,000.
Next, calculate the return over the entire period and then annualize it using the original cost as the base: 36,000 gain over 10 years on a base of 164,000.
Annualized simple return = (36,000 / 164,000) / 10 years = 0.2195...% per year? Wait, recalculate carefully: (36,000 / 164,000) gives the total return over 10 years, which is 0.2195 (21.95%). To annualize, divide by 10 years: 21.95% / 10 = 2.195% per year.
Thus the annual return is about 2.2% per year.
Notes:
- This uses the standard ROI calculation: annual return = (Ending value − Beginning value) / Beginning value ÷ Number of years.
- If one were to interpret annual yield differently (for example, using compound annual growth rate), the result would be slightly different, but with the information given (simple purchase price vs sale price over a decade), the approximate annual return is about 2% per year.
- The provided answer choice states 'B. about 2%,' which aligns with the computed figure in this context.
- The question did not supply the options list here, so a direct comparison to other choices isn’t possible from the given data, but the calculation supports an answer in the vicinity of 2% per year.

25_2 FIN401 TVM Multiple choice questions

Mr. Darden is selling his house for $200,000. He bought it for $164,000 ten years ago. What is the annual return on his investment?

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