rent on a property is payable continously for 5yrs.The rent in first yr is 3000 and thereafter annual rent increases 500 per annum.Calculate present value at start of five yr period using an annual effective rate of interest of 6%
First calculate the present value of the five 3 000$ payments,
PV1 = 3000*[(1-(1,06)^(-5))/0,06] = 12 637.09$
Then use the increasing annuity formula for the increasing 500$,
PV2 = 500*[[(1-(1,06)^(-5))/0,06]*1,06-5*(1,06)^(-5)]/0,06 = 6073.46$
Add the the annuity,
PV1+PV2= 18 710.55$