Question

Bill and nine of his friends each contributed $10,000 to form a real investment group. The group then purchased a small retail center for $350,000 using an interest-only loan for $250,000 at 10% annual interest. At the end of one year, the building was sold for $410,000. What is the rate of return on Bill's investment?

Answer 1

Rate of return = 9.33%

Step-by-step explanation:

As for the provided information, we have:

Bill and his nine friends invested $10,000 each = $10,000 (Bill + 9 ) = $10,000
`*` 10 = $100,000

Extra loan taken = $250,000

Interest on such for the year = $250,000
`*` 10% = $25,000

Interest expense for each individual = $25,000/10 = $2,500

Share of loan for each person = $250,000/10 = $25,000

Total cost of retail center to each person = $10,000 + $25,000 + $2,500

= $37,500

Return on investment = $410,000

Return share of each individual = $410,000/10 = $41,000

Net return to each individual = Return - Cost = $41,000 - $37,500 = $3,500

Net rate of return =
`(3,500)/(37,500) * 100 = 9.33`