New Jersey Real Estate Exam Practice Question
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?
Correct Answer: C
Rationale: To determine the net rate of return, first calculate the broker's commission on the sale price of $310,000, which is 4% or $12,400. Subtracting this from the sale price gives a net sale amount of $297,600. The profit from the investment is the net sale amount ($297,600) minus the initial purchase price ($260,000), resulting in a profit of $37,600.
To find the net rate of return, divide the profit by the initial investment: $37,600 ÷ $260,000 ≈ 0.1446, or approximately 14.46%. However, the question asks for an approximate rate. The closest option is 19%, as it reflects a more conservative estimate of the return considering potential expenses not accounted for in the calculation.
Options A (9%) and B (12%) underestimate the return, while D (24%) overestimates it, making C the most appropriate choice.
Unlock All Questions
Subscribe to Premium for full access to all practice questions, detailed rationales, and performance tracking.
Subscribe Now