Present value of a 10-year lease with 2% annual rent increases

[logicandtruth]

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?

 

[Wilmer]

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

 

[logicandtruth]

Yes it works I must have been using the incorrect figure with my calculator.

Many thanks