Question 20 • 26-27 Ignite Technical Math-Financial Math - MA2007
Four years ago, Ted bought two rental homes for a total of $460,000. Since then, the homes have been increasing in value at a rate of 3.1% per year. Upkeep on the homes costs Ted $1,430 per year per home, and he rents them out at a monthly rate of $820 each. Both homes have been rented out constantly since Ted bought them. Between revenue gained from renting out the homes and appreciation on the property, which aspect of Ted’s investment has increased in value more, and by how much more has it increased, to the nearest dollar?
Answer
A
Ted will gain $20,387 more from the appreciation than from the rent.
B
Ted will gain $26,107 more from the appreciation than from the rent.
C
Ted will gain $7,532 more from the rent than from the appreciation.
D
Ted will gain $18,972 more from the rent than from the appreciation.
Explanation
Ted earns $820 × 2 homes × 12 months × 4 years = $78,720 in rent. Upkeep costs $1,430 × 2 × 4 = $11,440, so his rental income after upkeep is $67,280. The homes appreciate by $460,000 × (1.031⁴ − 1) ≈ $59,748. Rental income is therefore about $7,532 greater, so the correct choice is “Ted will gain $7,532 more from the rent than from the appreciation.”
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