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A freehold reversion produces $30,000 p.a. for 5 years and thereafter the full rental value....

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Finance

A freehold reversion produces $30,000 p.a. for 5 years and thereafter the full rental value. The current market rental value is $45,000 p.a. Freeholds in similar properties let at full rental value sell at notional yields of 7%. Investors regard this type of investment as more attractive than properties let at full rental value. Value the freehold reversion using a 7% yield for the term and 5% yield for the reversion. The answer is:

a. $868,547.32
b. $764,693.48
c. $746,693.48
d. $687,547.32

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