Assume that you purchase a property for $2,450,000 and it generates $195,000 per year of rental income and you sell it after 30 years for $2,975,000. What is your yield (annual rate of return) on this investment?

Assume that you purchase a property for $2,450,000 and it generates $195,000 per year of rental income and you sell it after 30 years for $2,975,000. What is your yield (annual rate of return) on this investment?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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2. Assume that you purchase a property for $2,450,000 and it generates $195,000 per year of rental income and you sell it after 30 years for $2,975,000. What is your yield (annual rate of return) on this investment?

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

Expert Solution

Step 1

ANNUAL RATE OF RETURN

Annual rate of return is computed by deducting the cost of maintenance and taxes from the annual rental income and then dividing it by the purchase price of a property.

annual rate of return on this investment :—

= {Yearly Rental Income - Taxes & Expenses) ÷ Cost of Property} * 100

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