Question

Your friend has a rental property that nets $750 a month in income. He wants to...

Your friend has a rental property that nets $750 a month in income. He wants to sell you a 20 year equity share of the property that will pay $200 a month. If your discount rate is 4.5%, how much are you willing to pay for the share of the property?

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Answer #1


Using financial calculator BA II Plus - Input details:

#

I/Y = Rate/Frequency = 4.5/12 =

              0.375000

PMT =

-$200.00

N = Number of years x frequency = 20*12 =

240

FV = Future Value =

$0.00

CPT > PV = Present\value =

$31,613.09

Formula based present value of annuity:

PV = |PMT| x ((1-(1+R)^-N)/R = 200*(1-(1+0.375%)^-240)/0.375% =

$31,613.09

The value that can be paid for $200 monthly income is $31,613.09

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