MHB Calculate Present Value of 10-Year Lease w/ OCC & Variable Rental

logicandtruth
Messages
14
Reaction score
1
Hi all

Trying to improve my level of maths and would like some help with the below question please.

A 10-year lease with annual rental payments to be made at the end of each year, with the rent increasing by 2% each year. If the first year rent is £20 and the OCC is 10% per year, what is the Present value of the lease?

The formula for present value of a level annuities is below (for a growing interest rate)

View attachment 8227

According to my book the answer should be £132.51, but I get -23.88.

View attachment 8228

Could anyone tell me where I am misinterpreting the formula?
 

Attachments

  • PV Formula.PNG
    PV Formula.PNG
    2.5 KB · Views: 121
  • PV Formula Answer.PNG
    PV Formula Answer.PNG
    4.7 KB · Views: 104
Mathematics news on Phys.org
Book is correct. Are you using a calculator?
You're probably entering the data wrongly...we can't tell...
Try it this way:
u = (1.02/1.10)^10
v = .10 - .02

PV = 20*(1 - u) / v
 
Yes it works I must have been using the incorrect figure with my calculator.

Many thanks
 
Insights auto threads is broken atm, so I'm manually creating these for new Insight articles. In Dirac’s Principles of Quantum Mechanics published in 1930 he introduced a “convenient notation” he referred to as a “delta function” which he treated as a continuum analog to the discrete Kronecker delta. The Kronecker delta is simply the indexed components of the identity operator in matrix algebra Source: https://www.physicsforums.com/insights/what-exactly-is-diracs-delta-function/ by...
Fermat's Last Theorem has long been one of the most famous mathematical problems, and is now one of the most famous theorems. It simply states that the equation $$ a^n+b^n=c^n $$ has no solutions with positive integers if ##n>2.## It was named after Pierre de Fermat (1607-1665). The problem itself stems from the book Arithmetica by Diophantus of Alexandria. It gained popularity because Fermat noted in his copy "Cubum autem in duos cubos, aut quadratoquadratum in duos quadratoquadratos, et...
I'm interested to know whether the equation $$1 = 2 - \frac{1}{2 - \frac{1}{2 - \cdots}}$$ is true or not. It can be shown easily that if the continued fraction converges, it cannot converge to anything else than 1. It seems that if the continued fraction converges, the convergence is very slow. The apparent slowness of the convergence makes it difficult to estimate the presence of true convergence numerically. At the moment I don't know whether this converges or not.

Similar threads

Back
Top