Steven is looking to purchase an investment property, and is interested in a particular apartment on London Street. This apartment costs $500,000. Steven has also estimated that the other upfront costs for purchasing the apartment will total $5,000. Steven has also spoken to his real estate agent Ray and his banker Jane, and gathered the following additional information:

• Strata for the apartment is estimated at $700 per quarter in arrears.

• Council rates are estimated at $500 per year payable in arrears.

• Steven can expect to receive $1,600 per month in rent, paid in advance. The apartment is currently tenanted, so he expects to receive the first rent payment immediately after he purchases the apartment.

• The bank will only lend a maximum of 80% of the apartments price.

• The bank is willing to lend to Steven at an interest rate of 3.5% p.a. compounding daily. The banking industry standard is to always assume there are 365 days in a year.

  Currently, Steven is considering the value of this investment over the next 10 years.

1. Calculate the equivalent effective quarterly rate.

2. Calculate the equivalent effective annual rate.

NOTE - please show working out using time value of money formulas on paper not excel