Question

# Jenny bought a rental property for \$1,000,000 and leased it for 24 months. Rents will be...

1. Jenny bought a rental property for \$1,000,000 and leased it for 24 months. Rents will be collected at the beginning of each month and the residual value after 24 months will be \$800,000. To earn 24% rate of return per year on this lease, how much rent/month should be charged?

Step - (1) - Information Given :-

Cost of rental property = \$1000000.

Lease term = 24 months.

Monthly rate of return = (24% / 12) = 2%.

Residual value = \$800000.

.

Step - (2) - Calculation of the amount of monthly lease payments :-

= [Cost of rental property - Present value of residual value] / PVAF of \$1 (i%, n)

= [\$1000000 - \$800000 * PVIF of \$1 (i%, n)] / PVAF of \$1 (i%, n)

= [\$1000000 - \$800000 * PVIF of \$1 (2%, 24)] / PVAF of \$1 (2%, 24)

= [\$1000000 - (\$800000 * 0.62172)] / 18.9139

= (\$1000000 - \$497376) / 18.9139

= \$26574

Therefore, the amount of rent per month should be charged = \$26574.

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