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Suppose you own a house that you are renting out to a group of college students for the 10 month academic year. You are charging $1000 per month in rent. You will collect the first rent payment today and then on the 1st of the month each month thereafter. What is the value of this investment opportunity to you today if you could reinvest your income at an annualized rate of 6%

Answer :

The value of this investment opportunity to you today is  $9730.42.

What is the value of the investment today?

The first step is to determine the future value of the investment. The formula that can be used to determine the future value is:

Amount x annuity factor

Annuity factor = {[(1+r)^n] - 1} / r

Where:

  • r = interest rate  = 6% /12 = 0.5%
  • n = number of years = 10

1000 x {[1.005^10] - 1 / 0.005 = 10,228.03

Now determine the present value

10,228.03 / (1.005^10) = $9730.42

To learn more about present value, please check: https://brainly.com/question/26537392

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