An investor buys a commercial property for $260,000. Six months later, he sells the property through a broker for $310,000 and pays the broker a 4% commission. What is the investor's approximate net rate of return on the investment?

Rationale

The investor's approximate net rate of return on the investment is 19%.

To determine the net rate of return, we first need to calculate the total gain from the investment after selling and deducting the broker's commission. The sale price minus the commission gives the investor's net proceeds, which can then be compared to the original investment to find the return percentage.

A (9%) YOUR ANSWER

This choice suggests a lower rate of return that does not account for the correct calculations of the sale proceeds and the commission. The return is derived from the profit made relative to the initial investment, leading to a substantially higher percentage than 9%.

B (12%) YOUR ANSWER

While this option indicates a positive return, it is still not reflective of the true profit margin achieved by the investor. The calculations show that the investor's return is significantly higher than 12%, as the profit margin is derived from a more substantial net gain.

C (19%) CORRECT

This is the correct answer. After calculating the total profit from the sale price minus the broker's commission, the investor realizes a gain of $50,000 on the original $260,000 investment. Dividing the gain by the initial investment and converting it to a percentage yields approximately 19%.

D (24%) YOUR ANSWER

This choice overestimates the rate of return. A 24% return would imply a much higher profit margin than what the calculations reveal, given the sale price and commission deductions. The net proceeds do not support such a high return rate based on the initial investment.

Conclusion

The net rate of return on the investment is calculated by determining the profit from the sale after deducting expenses, specifically the broker's commission. In this case, the investor’s net gain leads to an approximate return of 19%, providing a clear understanding of the investment's performance. Other options do not accurately reflect the calculations involved, confirming that careful analysis of sale proceeds is vital for understanding investment returns.

An investor buys a commercial property for $260,000. Six months later, he sells the property through a broker for $310,000 and pays the broker a 4% commission. What is the investor's approximate net rate of return on the investment?

The investor's approximate net rate of return on the investment is 19%.

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