Mike is considering renting a new apartment for a total of 4 years. Rent will be...

Mike is considering renting a new apartment for a total of 4 years. Rent will be paid monthly starting at $2,460 with the first payment in one months' time. The rental contract states that the rent will increase each month at the inflation rate of 2% p.a. compounded annually. If the appropriate discount rate is 6.25% p.a. compounded annually, what is the total cost to Mike of this rental agreement in current terms?

$104,348.63

$106,750.57

$108,579.55

$103,248.19

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Expert Solution

=2460/(1+r/12)*(1-((1+i/12)/(1+r/12))^(12*4))/(1-((1+i/12)/(1+r/12)))
=2460/(1+(1+6.25%)^(1/12)-1)*(1-((1+(1+2%)^(1/12)-1)/(1+(1+6.25%)^(1/12)-1))^(12*4))/(1-((1+(1+2%)^(1/12)-1)/(1+(1+6.25%)^(1/12)-1)))
=108579.55

jeff jeffy answered 2 years ago

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