An investor is considering purchasing an office building for $5 million with the intention of renting it out. Six months after purchase the investor will spend $0.5 million on necessary refurbishments and improvements. A tenant has agreed to lease the building in one year's time for 20 years. The tenant will pay an initial rent of $0.75 million per annum payable monthly in advance. The rent will be increased at four-yearly intervals at a rate of 2.0% per annum compound. It has further been agreed that at the end of the lease period the tenant will buy the building from the investor for $10 million. Which of the following is the accumulated profit the investor will have made at the end of the term using a rate of return on its investment of 6.0% per annum effective?
An investor is considering purchasing an office building for $5 million with the intention of renting it out. Six months after purchase the investor will spend $0.5 million on necessary refurbishments and improvements. A tenant has agreed to lease the building in one year's time for 20 years. The tenant will pay an initial rent of $0.75 million per annum payable monthly in advance. The rent will be increased at four-yearly intervals at a rate of 2.0% per annum compound. It has further been agreed that at the end of the lease period the tenant will buy the building from the investor for $10 million. Which of the following is the accumulated profit the investor will have made at the end of the term using a rate of return on its investment of 6.0% per annum effective?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:An investor is considering purchasing an office building for $5 million with the intention of renting it out. Six months after purchase the
investor will spend $0.5 million on necessary refurbishments and improvements.
A tenant has agreed to lease the building in one year's time for 20 years. The tenant will pay an initial rent of $0.75 million per annum
payable monthly in advance. The rent will be increased at four-yearly intervals at a rate of 2.0% per annum compound. It has further
been agreed that at the end of the lease period the tenant will buy the building from the investor for $10 million.
Which of the following is the accumulated profit the investor will have made at the end of the term using a rate of return on its
investment of 6.0% per annum effective?
O $22,889,114.62
O $23,120,505.81
O $23,180,097.78
O $23,275,395.38
O $23,413,623.89
O $23,430,787.98
O $23,569,942.54
O $23,586,683.6
O $23,726,768.86
O $23,785,620.07
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