Calculate the present value of the buying option

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You are expected to pay $500 per month for the first year, and rent will increase by $50 per month per year for the next 15 years (e.g., $550 per month for the 2nd year, $600 per month for the 3rd year, etc.). a schedule showing rent payments for the next 15 years. To simplify the problem, assume rent is paid annually at the end of each year. Discount rate is 5%.

Buying Option

Problem 1: Annual payments for the next 15 years will be $10,200 (at the end of each year). Calculate the present value of the buying option, using 5% as the discount rate.

Problem 2: Determine the present value of the renting option (rounded to the nearest dollar).

Problem 3:  Determine the present value of the buying option (rounded to the nearest dollar).

Problem 4:  Based your calculation, which option is preferred? Any other considerations you think should be considered in the real world?

Reference no: EM132710966

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