Question

Maverick wants to rent some office space for 5 years. The lease states that the

annual rent is $75,000 for the first year and will increase by 7.25% each
additional year of the lease. What will the total rent be for the entire 5-year
lease? Round your answer to the nearest hundredth.

Answer 1

$434,907.04 or $435,179.37 depending on your teacher's rounding.

Explanation:

The rent for the first year is given as $75,250.

For the second year, the rent will increase by 7.25%, so the rent will be:

$75250 + 0.0725 ($75,250) = $80,705.63

Using the calculation for the previous year, continue the formula.

The rent increases by 7.25% for the third year, so:

$80,705.63 + 0.0725 ($80,705.63) = $86,556.79

Fourth Year:

$86556.79 + 0.0735 (86556.79) = $92,918.71

Fifth Year:

92918.71 + 0.0735 (92918.71) = 99748.24

Add these all together to get the final rent after the 5 year lease:

75,250 + 80.705.63 + 86,556.79 + 92,918,71 + 99,748.24 = 435,179.37

Answer 2

$106,426.01

Explanation:

Use the compound amount equation A = P(1 + r)^t and take as your answer the total amount after 5 years. Here the principal is $75,000, the interest rate is 0.0725 and the number of years (t) is 5:

A = $75,000(1 + 0.0725)^5, or

A = $75,000(1.0725)^5, or

A = $106,426.01