Question

On an annual renewable lease, the quarterly lease payment on office space is $1600 payable in advance. What equivalent yearly payment made in advance would satisfy the lease if interest is 6.6% compounded monthly?

a. 15575.371
b. 18575.371
c. 17575.371
d. 16575.371

Answer 1

To find the equivalent yearly payment for an annual renewable lease with quarterly payments and monthly compounded interest, calculate the present value of the quarterly payments for one year, then determine the single annual payment equivalent to this present value.

Step-by-step explanation:

The question provided is regarding the calculation of an equivalent yearly payment made in advance for a lease, given a quarterly lease payment amount and an interest rate that is compounded monthly. The key to solving this problem is to find the present value of the quarterly payments for one year and then determine what single annual payment would be equivalent to this present value, taking into account the interest rate.

First, we calculate the present value of the four quarterly payments of $1600 each. Then, we use this present value to find the annual payment that, if made in advance, would equal the total present value of the quarterly payments. The interest rate needs to be adjusted to a monthly rate since it is compounded monthly, and the calculation involves using the formula for the present value of an annuity.

Once the calculations are complete, the correct annual payment that satisfies the requirements can be chosen from the options provided: a. 15575.371 b. 18575.371 c. 17575.371 d. 16575.371.