Question

If I want my rent in 4yrs to be 900dllrs. The owner of the apartment building told me that the rent will increase 3% every year compounded every year. What should be my rent today?

Answer 1

The formula for compound interest (which this problem asks about) is:

A = P(1+(r/n))^(nt)

Where A is the amount you end with, P is the original/beginning amount, r is the interest rate, n is the number of times interest is compounded, and t is the number of years. So because n = 1, this is what you'll be working with:

A = P(1+r)^t

You'll be solving for P because you want to know what rent should be at the beginning of the lease. So the formula should be rearranged as follows:

P = A/((1+r)^t)

All I did was solve the formula for P.

Now A = $900, r = 0.03, and t = 4.

Plug and solve and you'll have your answer.

Answer 2

710.78 to the nearest cent: 710.79 either one will be correct.