Question: Lilia Castillo is thinking about investing in some residential income producing
Lilia Castillo is thinking about investing in some residential income-producing property that she can purchase for $200,000. Lilia can either pay cash for the full amount of the property or put up $50,000 of her own money and borrow the remaining $150,000 at 8 percent interest. The property is expected to generate $30,000 per year after all expenses but before interest and income taxes. Assume that Lilia is in the 28 percent tax bracket. Calculate her annual profit and return on investment, assuming that she (a) Pays the full $200,000 from her own funds or (b) Borrows $150,000 at 8 percent. Then discuss the effect, if any, of leverage on her rate of return.
Answer to relevant Questions1. In view of Eileen’s long-term investment goals, do you think mutual funds or ETFs are the more appropriate investment vehicle for her?2. Do you think that she should use her $15,000 savings to start a mutual fund or an ...What is the earnings test, and how does it affect Social Security retirement benefits?Describe and differentiate between Keogh plans and individual retirement arrangements. What’s the difference between a nondeductible IRA and a Roth IRA?Many critics of the Social Security program feel that participants are getting a substandard investment return on their money. Discuss why you agree or disagree with this viewpoint.Briefly describe the main characteristics of defined contribution and defined benefit pension plans, and discuss how they differ from cash-balance plans. In each of these plans, does the employee or employer bear the risk of ...
Post your question