Real Estate Finance: Effective Rent for the Tenant

A prospective tenant is presented with a lease proposal by the owner of an office building.

The offer is for a seven-year term and a contract rate of $24.00 per square foot in the first year of the lease.

The rental rate then steps up $1.25 per square foot in each of the following years.

In addition the office includes three months of free rent on the front end of the lease.

What is the effective rent for the tenant over the entire lease, if the tenant's discount rate is 11%? (Assume monthly payments.)

A. $27.75 B. $26.00 C. $27.21 D. $26.89