Suppose Bill buys a house worth $300,000 and his deposit (equity) is $40,000. Now suppose the house rises in value to $330,000 next year. The percentage return on Bill's equity is __ %
Question
Suppose Bill buys a house worth 40,000. Now suppose the house rises in value to $330,000 next year. The percentage return on Bill's equity is __ %
Solution
To calculate the percentage return on Bill's equity, follow these steps:
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Determine the increase in the value of the house. This is done by subtracting the original value of the house from the new value. In this case, 300,000 = $30,000.
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The return on Bill's equity is this increase in value. So, his return is $30,000.
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To find the percentage return, divide the return by the original equity and multiply by 100. So, (40,000) * 100 = 75%.
Therefore, the percentage return on Bill's equity is 75%.
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