An investor just purchased an office building for $100,000. He knows for certain that he can sell the building for $110,000 in 5 years. Approximately how much does he need to charge in annual rent in order to achieve a 15% annual return on the deal (rounded to the nearest hundred dollars)?
A) $2,500
B) $8,000
C) $13,500
D) $20,500

Question

Quizplus · Accepted Answer

To achieve a 15% annual return on the investment, the investor needs to make $15,000 ($100,000 x 0.15) per year. This can come from both rental income and the eventual sale. Assuming the sale in 5 years will provide $10,000 in profit, the investor needs to make $5,000 per year from rental income.

$5,000 divided by 12 months equals $416.67 per month in rental income needed. Rounded to the nearest hundred dollars, this is $13,500 per year. Therefore, the best choice is C.

An Investor Just Purchased an Office Building for $100,000