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

The formula for calculating annual return is:
Annual Return = (Final Value - Initial Value)/Initial Value

We know that the investor wants to achieve a 15% annual return, so we can set up the equation:

0.15 = (110,000 - 100,000)/100,000

Solving for the initial value, we get:

Initial Value = 91,304.35

This means that the investor needs to make $91,304.35 in rent over the 5-year period. To calculate the annual rent needed, we can divide this by 5:

Annual Rent Needed = $91,304.35/5 = $18,260.87

Rounding to the nearest hundred dollars, we get:

Annual Rent Needed = $18,300

Therefore, the best choice is C.

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