Task briefing:

ABC Ltd. is a multinational that wants to invest in the real estate business in Barcelona.

Two alternatives are offered by the owner of a property in one of the most popular areas of the city.

Option A: Renting the property with a perpetual contract, meaning for ever and ever. In this case, the company has to pay 4,000 per month and the contract contains a clause stating that the rent price will be growing at a 0.07% monthly.

Option B: Acquiring the property with a mortgage scheme for 40 years. The current ownership is demanding an initial payment of 1,975,000 and a monthly amount of 2,500 .

The interest applicable rates are around 3.5% compounded yearly, this is supposed to be the market rate for this type of activities.

Question : In terms of Finance, what is the difference between Option A and Option B?

Please describe the question )