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Chapter 17: Q. 28 (page 426)

Is investing in housing always a very safe

investment?

Short Answer

Expert verified

Yes, it is a risk-free investment because it will not lose money.

Step by step solution

01

Definition of financial investment.

Financial investment is an investment that yields a profit asset.

02

Explanation of solution.

Real estate investments are commonplace investments. Because earnings cannot be realized in a short period of time, they should be for the long term. When purchasing a home, previous trends in the same location's appreciation are considered. However, additional factors such as mortgage amount and interest, property taxes, and house maintenance costs have an impact. All of this raises the cost of goods. If the mortgage payment is lower and the appreciation is good, the investment is better than any other. Otherwise, there is no way to say that buying a house is a hazardous investment because it will not result in damages.

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Most popular questions from this chapter

Imagine that a local water company issued \(10,000 ten-year bond at an interest rate of 6%. You are thinking about buying this bond one year before the end of the ten years, but interest rates are now 9%.

a. Given the change in interest rates, would you expect to pay more or less than \)10,000 for the bond?

b. Calculate what you would actually be willing to pay for this bond.

Calculate the equity each of these people has in his or her home:

a. Fred just bought a house for \(200,000 by putting 10% as a down payment and borrowing the rest from the bank.

b. Freda bought a house for \)150,000 in cash, but if she were to sell it now, it would sell for \(250,000.

c. Frank bought a house for \)100,000. He put 20% down and borrowed the rest from the bank. However, the value of the house has now increased to \(160,000 and he has paid off \)20,000 of the bank loan.

What are the two key choices U.S. citizens need to make that determines their relative wealth?

You open a 5-year CD for $1000 that pays 2% interest, compounded annually. What is the value of that CD at the end of the five years?

What is the difference between a private company and a public company?
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