Suppose that, as a lease, you just signed a lease to pay $1,000 per month (Annuity...
Suppose that, as a lease, you just signed a lease to pay $1,000 per month (Annuity due) for 5 years. Simultaneously, you can sublease the property for $1,800 per month (Annuity due) for 5 years. What is the value of your leasehold interest at a discount rate of 12%?
a. $35,987
b. $36,324
c. $37,893
d. $38,329
Homework Answers
![First we will find the Present value of Lease we pay Present value of annuity due lease payments is -P+P(1-1r)-n)/r)] P is Lease Monthly Payment S 1,000/ r is Monthly Rate of Interest-190 per month n is No of months 5*12 60 Months Present value of annuity due is-1000+[1000((1-(1-0.01)A-60)/0.01)] Present value of annuity due is 1000+[1000 (0.449550384/0.01)] Present value of annuity due is-1000+[1000 4.95 5038] Present value of annuity due is S 45,955.04/. Approx. Now we will find the Present value of sub lease payments Present value of annuity due due sublease payments is -P*((1-(1+r)A-n)/r) P is Lease Monthly Payment S1,800/ r is Monthly Rate of Interest = 1% per month n is No of months-5#12-60 Months Present value of annuity due is-1800+[1800*((1-(1-0.01)A-60)/0.01)] Present value of annuity due is-1800+[1800 44.9550381 Present value of annuity due is 1800+80919.07 Present value of annuity due is - S 82,719.07/. Approx., Value of your leasehold interest is-(82719.07-45955.04) value of your leasehold interest is = $ 36,764. Anwer is Option b) is the nearest value](http://img.homeworklib.com/questions/2ce790e0-40dc-11ea-81f8-27bfe065b47b.png?x-oss-process=image/resize,w_560)
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