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Annuity due
Annuity due. Reginald is about to lease an apartment for 24 months. The landlord wants him to make the lease payments at the start of the month. The monthly payments are $1,400 per month. The landlord says he will allow Reg to prepay the rent for the entire lease with a discount. The one-time payment due at the beginning of the lease is $30,369. What is the implied monthly discount rate for the rent? If Reg is earning 0.7% on his savings monthly, should he pay by month or make the one-time payment? What is the implied monthly discount rate for the rent? 1 % (Round to two decimal places.
Expert Solution
The monthly discount rate can be calculated using the RATE function in spreadsheet
RATE(number of periods, payment per period, present value, future value, when-due, rate guess)
Where,
number of periods = 24
payment per period = monthly rent = $1,400
present value = one-time payment = -$30,369
future value = 0
when-due = when is the rent paid each month = beginning = 1
rate guess = a guess of the discount rate = 1%
Monthly discount rate = RATE(24, $1400, -$30,369, 0, 1, 1%) = 0.90%
The answer is 0.90% when rounded to two decimal places
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