A West Virginia investor purchases a property for $300,000 with a $60,000 down payment. The property appreciates 8% in one year. What is the return on equity (ROE) based on the appreciation alone?

Explanation

Appreciation = $300,000 x 0.08 = $24,000. ROE = $24,000 / $60,000 (equity/down payment) = 0.40 = 40%. Leverage amplifies returns — an 8% appreciation on the total value equals a 40% return on the equity invested.