Question

You have bought a house today at the price of $500,000. In the next two years, you will get a rent of $50,000 each year. In year 3, there is no rent income but you will sell the house at the price of $800,000. Suppose the discount rate (interest rate) is always 10% each year. What is the present value at time zero for the rent income at year 1

Answer 1

Answer:

Present Value= $45,454.55

Explanation:

Giving the following information:

You will get a rent of $50,000 each year.

The discount rate is 10%.

To calculate the present value at time zero of the first rent, we need to use the following formula:

PV= FV/(1+i)^n

PV= 50,000/(1.10)= $45,454.55