What is the expected after-tax rate of return

Reference no: EM133432345

Question 1:

Randall and Julia Clarke are considering buying a $200,000 condominium by paying all cash (Randall has just received some money from his grandfather's estate). Although there are no mortgage payments, there are other home ownership costs: - property taxes of $3,000 per year, condominium fee of $500 per month, and home insurance premium of $600 per year. It is expected that the price of the condominium will increase at 2.5% per year. Alternatively, they can rent the condominium at $1,500 per month. If they rent, they will buy a tenant insurance policy to cover only the content of the condo, and that will cost $300 per year. Their marginal tax rates are the same, 35%.

Required:

What is the expected after-tax rate of return on the condominium?

Question 2:

Robert Lee has $10,000 to invest. He wants to invest $5,000, $3,000 and $2,000 in Mutual Funds A, B, and C respectively. The expected rates of return for A, B and C are respectively 10%, 13% and 15%, and the standard deviations for A, B and C are respectively 18%, 20% and 25%. The correlation coefficients are: between A and B = 0.8, between A and C = 0.65, and between B and C = -0.7.

Required:

Calculate (a) the expected rate of return on his portfolio

and (b) the standard deviation of the rate of return on his portfolio

Reference no: EM133432345

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