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A man pays 40 times the annual rent to purchase a building. The rate % per annum he derives from his investment is

Question and options

A man pays 40 times the annual rent to purchase a building. The rate % per annum he derives from his investment is
  1. 2.50%
  2. 3.33%
  3. 4.00%
  4. 6.67%

Answer and explanation

Correct answer: A - 2.50%
Price = 40 x annual rent, so the yield is rent/price = 1/40 = 2.5% per annum. A return of 4% would need a price of only 25 times the rent, and 3.33% a price of 30 times the rent.

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