Suppose the annual inflation rate is 3% and the house price stays constant in real terms. Assume
are NO taxes on any capital gains. If you sell the house after 5 years, what are the net
from the sale after you have paid off the remaining balance of your mortgage?
Suppose after buying the house, you rent out the house right away. The tenants will pay rent at
of each year for 5 years (note: rent is paid annually, not
monthly). The first rent
payment (due now) is $40,000 and the annual rent is expected to grow at 1% in real terms.
present value of this rental income if the appropriate annually compounded nominal
for you is 5% and the expected annual inflation is 3%. For this question, assume you do not pay any tax
on the rental income.