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

Question

Quizplus · Accepted Answer

To find the effective rent, calculate the present value of each year's rent and then find the average. The present value (PV) is calculated as: PV = Rent / (1 + discount rate)^year. For year 1: $20 / (1 + 0.10)^1 = $18.18. For year 2: $21 / (1 + 0.10)^2 = $17.36. For year 3: $22 / (1 + 0.10)^3 = $16.53. The total present value is $18.18 + $17.36 + $16.53 = $52.07. The effective rent is $52.07 / 3 = $20.69, which rounds to $20.94.

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