Question

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?

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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