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 1^st of the month each month thereafter.What is the value of this investment opportunity to you today if you could reinvest your income at a rate of 6%? A)$9,677.77 B)$9,730.41 C)$9,779.06 D)$11,677.03

Question

Quizplus · Accepted Answer

To calculate the present value of the investment opportunity, we need to use the formula for the present value of an annuity:

PV = R * [(1 - (1 + i)^-n) / i]

Where:
- PV is the present value
- R is the monthly rent payment
- i is the monthly interest rate (6% / 12 = 0.005)
- n is the number of months in the rental period (10)

Using the values given in the problem, we get:

PV = 1000 * [(1 - (1 + 0.005)^-10) / 0.005]
PV = $9,779.06

Therefore, the best choice is C.

Suppose You Own a House That You Are Renting Out