Question

In: Finance

After living in a university residence for one year, Kate decides to rent an apartment for...

After living in a university residence for one year, Kate decides to rent an apartment for the remaining three years of her degree. She has found a nice location that will cost $860 per month. Rent for the first and last month must be paid up front.

How much money would Kate need to have in her bank account right now to be sure she will always have enough for rent? The bank account pays 3.0 percent interest, compounded monthly. (Round answer to 2 decimal places, Do not round your intermediate calculations.)

Amount Alysha would need to have right now $Type your answer here

Solutions

Expert Solution

PMT = $860
Nper = 34
Rate = 3% / 12 = 0.25%
FV = 0

Present value can be calculated by using the following excel formula:
=PV(rate,nper,pmt,fv)
=PV(0.25%,34,-860,0)
= $27,998.26

Amount Alysha would need to have right now = Present value + Upfront payments
= $27,998.26 + ($860 + $860)
= $29,718.26


Amount Alysha would need to have right now = $29,718.26


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