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Neko [114]
3 years ago
5

"A tenant offers to sign a lease paying a rent of $1,000 per month, in advance (i.e., the rent will be paid at the beginning of

each month), for five years. At 10% nominal annual interest compounded monthly, what is the present value of this lease
Business
1 answer:
belka [17]3 years ago
3 0

Answer:

$47,500

Explanation:

Since the payment is made monthly in advance for the period of 5 years, therefore the present value of annuity formula shall be used for the purpose of calculating the Present value of lease, which is given as follow:

Present value of annuity=R+R[(1-(1+i)^-n)/i]

In the given question

R=Rent per month paid in advance=$1,000

i=interest compounded monthly=10%/12=0.83%

n=number of payments involved=(12*5)-1=59

Present value of annuity=1,000+1,000[(1-(1+0.83%)^-59)/0.83%]

                                        =$47,500

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