Mark found two feasible options for an apartment to rent for the next 2 years. Option A requires monthly rent of $1,300 to be paid at the beginning of each month. Option B allows for end-of-month rent payments of $1,300 (same amenities as in option A). Mark uses a fairly high annual discount rate of 24% (sadly, he is also a high credit risk). Find the PV of the future rent payments for both options over the 2-year time period and explain which one Mark will prefer, if he bases his decision strictly on cash flow. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places e.g. 5,125.36.) Click here to view the factor table Option A Option B Present value $ $ Mark would choose , because he would effectively be paying in rent over this two-year period.
Mark found two feasible options for an apartment to rent for the next 2 years. Option A requires monthly rent of $1,300 to be paid at the beginning of each month. Option B allows for end-of-month rent payments of $1,300 (same amenities as in option A). Mark uses a fairly high annual discount rate of 24% (sadly, he is also a high credit risk). Find the PV of the future rent payments for both options over the 2-year time period and explain which one Mark will prefer, if he bases his decision strictly on cash flow. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places e.g. 5,125.36.) Click here to view the factor table Option A Option B Present value $ $ Mark would choose , because he would effectively be paying in rent over this two-year period.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Mark found two feasible options for an apartment to rent for the next 2 years. Option A requires monthly rent of $1,300 to be paid at
the beginning of each month. Option B allows for end-of-month rent payments of $1,300 (same amenities as in option A). Mark uses a
fairly high annual discount rate of 24 % (sadly, he is also a high credit risk).
Find the PV of the future rent payments for both options over the 2-year time period and explain which one Mark will prefer, if he
bases his decision strictly on cash flow. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 2
decimal places eg. 5,125.36.)
Click here to view the factor table
A
Option A
Present value
$
S
Option B
Mark would choose
, because he would effectively be paying
in rent over this two-year period.
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