Section 12: Real Estate and Lending 135File name: hp 12c_user's guide_English_HDPMBF12E44 Page: 135 of 209Printered Date: 2005/7/29 Dimension: 14.8 cm x 21 cmLeases often call for periodic contractual adjustments of rental payments. Forexample, 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 aredecreased periodically according to the lease contract. Lease payments are madeat 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 flowdiagram from the investor’s viewpoint looks like this:To find today’s present value of the cash flows assuming a desired yield, the NPVtechnique may be used. (Refer to pages 58 thru 62.)Example 2: A 2-year lease calls for monthly payments (at the beginning of themonth) of $500 per month for the first 6 months, $600 per month for the next 12months, 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 presentvalue of the lease)?Keystrokes DisplayfCLEARH 0.00 Initialize.500gJ 500.00 First cash flow.gK5ga500.005.00 Second thru sixth cash flows.600gK12ga600.0012.00 Next twelve cash flows.750gK6ga750.006.00 Last six cash flows.13.5gC 1.13 Monthly interest rate.fl 12,831.75 Amount to invest to achieve a13.5% yield.
