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

Question

Quizplus · Accepted Answer

The effective rent is the present value of the net rent payments over the three years, discounted at the 10 percent rate. The present value of the net rent payments in the first year is $20 * (1 - 0.5) * 1 / (1 + 0.1) = $10. The present value of the net rent payments in the second year is $21 * 1 / (1 + 0.1) = $19.09. The present value of the net rent payments in the third year is $22 * 1 / (1 + 0.1)^2 = $19.82. The effective rent is the sum of these present values, which is $10 + $19.09 + $19.82 = $48.91.

A Building Owner Charges Net Rent of $20 in the First