HP HP12C hp 12c_user's guide_English_E_HDPMBF12E44.pdf - Page 135

Section 12: Real Estate and Lending 135 Leases often call for periodic contractual adjustments of rental payments. For example, a 2-year lease calls for monthly payments (at the beginning of the month) of $500 per month for the first 6 months, $600 per month for the next 12 months, and $750 per month for the last 6 months. This situation illustrates what is called a "step-up" lease. A "step-down" lease is similar, except that rental payments are decreased periodically according to the lease contract. Lease payments are made at the beginning of the period. In the example cited, the rental payment stream for months 7 through 24 are "deferred annuities," as they start at some time in the future. The cash flow diagram from the investor's viewpoint looks like this: To find today's present value of the cash flows assuming a desired yield, the NPV technique may be used. (Refer to pages 58 thru 62.) Example 2: A 2-year lease calls for monthly payments (at the beginning of the month) of $500 per month for the first 6 months, $600 per month for the next 12 months, and $750 per month for the last 6 months. If you wish to earn 13.5% annually on these cash flows, how much should you invest (what is the present value of the lease)? Keystrokes Display fCLEARH 500gJ gK 5ga 0.00 500.00 500.00 5.00 Initialize. First cash flow. Second thru sixth cash flows. 600gK 12ga 600.00 12.00 Next twelve cash flows. 750gK 6ga 750.00 6.00 Last six cash flows. 13.5gC fl 1.13 12,831.75 Monthly interest rate. Amount to invest to achieve a 13.5% yield. File name: hp 12c_user's guide_English_HDPMBF12E44 Printered Date: 2005/7/29 Page: 135 of 209 Dimension: 14.8 cm x 21 cm