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Paul's mom, Gina, owns her home outright, without a mortgage. It is currently worth 100,000 If she could get four percent interest by investing her money in a secure government bond, what is the implicit annual interest cost of her home? A. 4,000 B. 6,000 C. 5,000 D. 3,000

Question

Paul's mom, Gina, owns her home outright, without a mortgage. It is currently worth 100,000 If she could
get four percent interest by investing her money in a secure government bond, what is the implicit annual
interest cost of her home?
A. 4,000
B. 6,000
C. 5,000
D. 3,000

Paul's mom, Gina, owns her home outright, without a mortgage. It is currently worth 100,000 If she could get four percent interest by investing her money in a secure government bond, what is the implicit annual interest cost of her home? A. 4,000 B. 6,000 C. 5,000 D. 3,000

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RoslynMaster · Tutor for 5 years

Answer

The implicit annual interest cost of Gina's home is \(\boxed{\$4,000}\), which corresponds to option A.

Explain

To calculate the implicit annual interest cost of Gina's home, we need to consider what she could earn if she invested the current value of her home in a secure government bond that yields a four percent annual interest rate. The implicit cost represents the opportunity cost of not investing that money. The formula to calculate this is:Implicit cost = Asset Value * Annual Interest RateIn this case, the Asset Value is the current worth of Gina's home, which is \(\$100,000\), and the Annual Interest Rate is four percent, or 0.04 when converted from a percentage to a decimal.Now, let's calculate the implicit cost:Implicit cost = \(\$100,000 * 0.04\)Implicit cost = \(\$4,000\)
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