Question

On an annual renewable lease, the quarterly lease payment on office space is $1,400 payable at the begining of every three months. What equivalent yearly payment made in advance would satisfy the lease if interest is 8.3% compounded quarterly?

Answer 1

The equivalent yearly payment made in advance for the annual renewable lease would be $1,482.97.

Step-by-step explanation:

To find the equivalent yearly payment made in advance, we need to calculate the future value of the quarterly lease payments with interest.

First, let's calculate the quarterly interest rate. The annual interest rate is 8.3%, so the quarterly interest rate would be 8.3% / 4 = 2.075%.

Now, let's calculate the future value of the quarterly payments using the formula for compound interest: PV = FV / (1 + r)^n, where PV is the present value (quarterly payment), FV is the future value (equivalent yearly payment), r is the quarterly interest rate, and n is the number of quarters in a year.

Using the given quarterly lease payment of $1,400, the quarterly interest rate of 2.075%, and the number of quarters in a year (4), we can calculate the future value:

FV = $1,400 * (1 + 0.02075)^4 = $1,482.97 (rounded to two decimal places)

Therefore, the equivalent yearly payment made in advance would be $1,482.97.