Jenny Enterprises has just entered a lease agreement for a new manufacturing facility. Under the terms of the agreement, the company agreed to pay rent of $12,500 per month for the next 10 years with the first payment due today. If the APR is 6.48 percent compounded monthly, what is the value of the payments today

$1,107,793.41

Explanation:

The value of the payment today can be ascertained using the present value of an annuity due formula since the first payment is immediate as shown thus:

PV=monthly payment*(1-(1+r)^-n/r*(1+r)

monthly payment=$12,500

r=monthly interest rate=6.48%/12=0.0054

n=number of monthly payments in 10 year=10*12=120

PV=$12,500*(1-(1+0.0054)^-120/0.0054*(1+0.0054)

PV=$12,500*(1-(1.0054)^-120/0.0054*(1.0054)

PV=$12,500*(1-0.524003627 )/0.0054*1.0054

PV=$12,500*0.475996373 /0.0054*1.0054

PV=$1,107,793.41

(a) when insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.

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