1. Rental Property

Note: express all PMT variables as negative numbers in order to have Excel show PV as a positive value.

a. A rental property is expected to earn $9,600 yearly in net income. You expect the unit to last another 20 years before needing total replacement (i.e. its value will depreciate to zero after 20 years). If your opportunity cost of capital is the expected 7% real return you expect to be able to earn on a broad-market equity portfolio, use Excels present value formula to calculate the capital value of the property

a.	RATE (Threshold rate/ opportunity cost of capital)
	NPER (asset lifespan/ remaining life)
	PMT (Expected Income)
	FV (salvage value--zero if fully depreciated at end of useful life)
	Present Value/ Capital Value

b. What is the maximum amount you would be willing to pay for renovation that would be expected to increase the useful life of the property by 20 yearsi.e. if after the renovations you now expect the unit to last 40 years?

b.	RATE (Threshold rate/ opportunity cost of capital)
	NPER (asset lifespan/ remaining life)
	PMT (Expected Income)
	FV (salvage value--zero if fully depreciated at end of useful life)
	Present Value/ Capital Value
	Max amount you'd pay for renovations:

c. What happens to the units capital value if easy monetary policy enacted by the Federal Reserve can successfully reduce broad interest rates (and hence, equity yields) by one percentage point (revert to the 20 year useful life expectancy as in part a)? Calculate the percent change in the units value due to this policy (i.e. the percent difference in the calculated present value here vs. in part a above).

c.	RATE (Threshold rate/ opportunity cost of capital)
	NPER (asset lifespan/ remaining life)
	PMT (Expected Income)
	FV (salvage value--zero if fully depreciated at end of useful life)
	Present Value/ Capital Value
	Percent change vs. a
	Change in asset value vs. a)
	Percent change in asset value