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Jason buys a rent house for $60,000 and puts the net rent

FINA_3330 Reavis_M Asg 3 Spring 2020 (2) eferences Mailings Review View Help Search E 1 ha A - A AaBbceDd AaBbccbd AaBC AaBbcc AaB AaBbcc AB 1 Normal No Spac. Heading 1 Heading 2 Title Subtitle Subtle E. Styles Paragraph ps www www p . Option A: Jason buys a rent house for $60,000 and puts the net rent (Net Operating Income, NOI)-after taxes, insurance, and repair expenses into Simmons Bank. The net rent is 5600/month. The after tax rate of return on the rent payments, deposited in the bank, is 3%/year, compounded monthly. Jason plans to sell the house after 15 years and add the sale proceeds to his rent account at the bank to pay for his son's college and have a nest egg started for his retirement. When Jason sells the house, he will have to pay a 20% capital gains tax on the fully depreciated value of the house. costs associated with the purchase and sale of the house (title insurance, survey, closing fees, realtor commission, depreciation Tecapture taxes, etc.). (1.8 points) What is the expected value of Option A after Jason sells the house and pays his taxes in 15 years? (Show how you calculate the value) FINA 3330 Reavis M Asg 3 Spring 2020 (2) References Mailings Review View Help Search A. A - D.A. E E . E 21 . AaBbcd AabCeDd AaBbC AaBbcc AaB AabbCD Aalbod 1 Normal 1 No Spac... Heading 1 Heading 2 Title Subtitle Subtle Em... E E . Paragraph Styles Option B: Jason buys 5 rent houses at $60,000 each. He uses his $60,000 in cash as a 20% down payment and borrows $240,000 from Simmons Bank. The net rent is used to pay off the loan over 15 years. At the end of the 15 years, Jason plans to sell the houses and put the cash into an account at Simmons Bank to pay for his son's college and establish a nest egg for retirement. The inflation rate is 2.5%. The houses increase in value with the inflation rate. When he sells the houses, he pays a 20% capital gains tax on the fully depreciated value of the houses. Ignore costs associated with the purchase and sale of the houses (title insurance, survey, closing fees, realtor commission, depreciation recapture taxes, etc.). (2. 8 points) What is the expected value of Option Bafter Jason sells the houses and pays his taxes in 15 years? (Show how you calculate the value) L TC Seal EEEEE211 EE E . . - d cDd AaBbc Normal No Spac..Heading 1 Heading 2 Title Subtitle .- Paragraph Styles Option C: Jason doesn't want to have to deal with renters, property maintenance, property taxes, property insurance, or any other issues required to actively manage his investments. He decides to invest his $60,000 inheritance in the stock market and asks a New York Life stockbroker for advice on how to invest his money. His broker convinces Jason to invest in a mutual fund with a 4% front- end load. Jason's net investment is expected to grow at an annual rate, after brokerage fees and taxes, of 7%. After 15 years, Jason plans to convert the investment into cash and deposit the money into an account at Simmons Bank for his son's college and to establish a nest egg for his retirement (3.8 points) What is the expected value of Option C when Jason deposits the money into Simmons Bank? (Show how you calculate the value) nces Mailings Review View Help Search po . . . E A 21 - . AaBbccd AaBbCcDd AaBbC AaBbcc Aab AaBbc Normal 1 No Spac... Heading 1 Heading 2 Title Subtit Paragraph Styles Option D: Jason can't decide on any other investment option. He puts his $60,000 in an account at Simmons Bank that earns 2.5% after taxes (which matches the inflation rate). (4. 8 points) What is the expected value of Option D after 15 years? (Show how you calculate the value) i. Compute the FV of the deposit. (5. 18 points) Discuss which option would be best for Jason. Include comments on the following issues as they relate to this case: Antive Dach FINA_3330 Reavis M Asg 3 Spring 2020 (2) ces Mailings Review View Help Search AO E. E E . EE . E 1 . AaBbceDd AaBbceDd AaBbc AaBbcc AaB AabbCCD Ad Normal 1 No Spac... Heading 1 Heading 2 Title Subtitle sat . Paragraph (5. 18 points) Discuss which option would be best for Jason. Include comments on the following issues as they relate to this case: Active vs. Passive Time value of Money FINA_3330 Reavis M Asg 3 Spring 2020 (2) Help Search erences Mailings Review View - AO -A. E. EE . . 32 21 E . B Aabbccd AaBbceod AaBBC AaBbce AaB AaBbCD Aalb 1 Normal 1 No Spac... Heading 1 Heading 2 Title Subtitle Subtle Z Paragraph Inflation Leverage FINA_3330 Reavis M Asg 3 Spring 2020 (2) References Mailings Review View Help Search Aa. A - D.A. 21 . ABCD AaBbccd AaBbC AaBbcc AaB AaBbced A 1 Normal 1 No Spac... Heading 1 Heading 2 Title Subtitle sue E E . Paragraph Risk Advantages and Disadvantages of Debt

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