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
- 2.50%
- 3.33%
- 4.00%
- 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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