Question

An apartment requires a 12-month lease. The terms of the lease require you to pay $1,000...

An apartment requires a 12-month lease. The terms of the lease require you to pay $1,000 upfront when you move in (the first month's $500 rent, plus a $500 security deposit). You then must pay $500 monthly per month, except at the end of the 12th month when you do not pay but receive your $500 security deposit back. What is the present value cost of this lease to you if your prevailing interest rate is the 1.0% per month?

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Answer #1
Payment No Cash flow PV factor PV
0 1000 1 1000
1 500 0.9900990099 495.049505
2 500 0.9802960494 490.1480247
3 500 0.9705901479 485.295074
4 500 0.9609803445 480.4901722
5 500 0.9514656876 475.7328438
6 500 0.9420452353 471.0226176
7 500 0.9327180547 466.3590274
8 500 0.9234832225 461.7416112
9 500 0.9143398242 457.1699121
10 500 0.9052869547 452.6434773
12 -500 0.8874492253 -443.7246126
Total $5291.92765

Total value of lease is $5,291.93
The cash flow are taken as occuring at the end of period.

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