Question

Rental costs for office space have been going up at 6.3% per year compounded annually for the past 4 years. If office space rent is now $22 per square foot per month, what were the rental rates 4 years ago? The rates 4 years ago were about $ per square foot. (Round to two decimal places as needed.)

Answer 1

To find the rental rates from 4 years ago, apply the reverse compound interest formula with the current rate of $22 per square foot, an annual increase of 6.3%, and a time period of 4 years. Solve for the principal to determine the original rental rate.

Step-by-step explanation:

To find the rental rates for office space 4 years ago, we need to use the formula for compound interest in reverse to determine the original amount before the annual compounded increase. The formula for compound interest is A = P(1 + r/n)^(nt), where:

Given that the current rent is $22 per square foot per month, and the rates have been compounding annually at a rate of 6.3%, we can rearrange the formula to solve for P:

P = A / (1 + r)^t

Substituting the given values, we get:

P = 22 / (1 + 0.063)^4

Calculating this gives us the rent 4 years ago, per square foot per month. The result should be rounded to two decimal places as needed.