Question

you have decided to sublet your apartment. your tenant has agreed to pay $150 per month starting today (with payments made at the beginning of each month)there are eight months left on your lease in the appropriate interest interest rate is 6%, compounded monthly. what is the present value of this agreement?

Answer 1

Answer:

PV= $1,173.44

Explanation:

Giving the following information:

your tenant has agreed to pay $150 per month. There are eight months left on the lease, the appropriate interest rate is 6%, compounded monthly.

To calculate the net present value, first, we need to calculate the final value and then use the present value formula.

FV= {A*[(1+i)^n-1]}/i

A= annual pay= 150

i=0.06/12= 0.005

n=8

FV= {140[(1.005^8)-1]}/0.005= 1,221.21

Now, we calculate the present value:

PV= FV/(1+i)^n

PV= 1,221.21/1.005^8= $1,173.44