Question

Five years ago, William bought a twelve-room apartment complex for $340,000, and he plans to sell it today. The real estate market caused William’s complex to increase in value by 1.8% every year. William charges $525 per month to rent a room, and pays $36,500 in building upkeep every year. If William has kept all of his apartments continually rented out since he bought the building, to the nearest hundred dollars, how much profit will he realize once he sells it?
a.
$195,500
b.
$227,200
c.
$226,100
d.
$245,500

Answer 1

First solve the future worth of the apartment

F = p( 1 +i)^n

F = 340000( 1 + 0.018)^5

F = 371721.61

Gain from rent

R = (525 / month room) ( 12 room) (12 month/ year) ( 5 yrs)

R = 378000

Cost for building upkeep

C = 36500/year ( 5years)

C = 182500

Profit = 371721.61 + 378000 – 340000 – 182500

Profit = $ 227221.61

so the answer is B