Question

An investor purchased two lots and paid $18,000 for each one. Since each lot had a 60' frontage he was able to subdivide the combined parcels in three lots with equal front footage. If the three lots sold for $15,000 each, his rate of profit on his investment was:

A. 25%
B. 30%
C. 35%
D. 40%

Answer 1

The rate of profit on the investment is 25%.

Step-by-step explanation:

To find the rate of profit on the investment, we need to calculate the total cost of purchasing the two lots and compare it to the total revenue from selling the three lots.

The investor purchased two lots for $18,000 each, which totals to $36,000. Since each lot has a 60' frontage, when the parcels were subdivided into three lots with equal front footage, each lot would have a frontage of 60/3 = 20'.

The three lots were sold for $15,000 each, which totals to $45,000. To calculate the rate of profit, we need to find the difference between the total revenue and the total cost, which is $45,000 - $36,000 = $9,000. Then, we can calculate the rate of profit as (Profit/Cost) x 100% = (9000/36000) x 100% = 25%.