Question

A building owner charges net rent of $20 in the first year, $21 in the second year, and $22 in the third year. Using a 10 percent discount rate, what is the effective rent over the three years

Answer 1

The effective rent over the three years is $51.09 million.

Step-by-step explanation:

To calculate the effective rent over the three years, we need to determine the present value of each year's net rent using a discount rate of 10 percent, and then sum them up.

Using the formula for present value, we can calculate:

1. Year 1: $20 divided by (1 + 0.10)^1 = $18.18 million
2. Year 2: $21 divided by (1 + 0.10)^2 = $17.36 million
3. Year 3: $22 divided by (1 + 0.10)^3 = $15.55 million

To find the effective rent over the three years, we add up the present values: $18.18 million + $17.36 million + $15.55 million = $51.09 million.

Therefore, the effective rent over the three years is $51.09 million.

Answer 2

$20.94

Step-by-step explanation:

first we must determine the present value of the the 3 rent amounts:

PV = $20/1.1 + $21/1.1² + $22/1.1³ = 52.07

then you need to calculate the payment considering the following values:

• principal = $52.07
• n = 3
• i = 10%

using a loan calculator payment = $20.9381 ≈ $20.94