If rent escalates 27.6% every 5 years, what is the annual escalation percentage?

Question

With compounded interest, rent is escalating 27.6% every 5 years. I need to determine what the annual rent escalation is. Please show me how you came to your answer and how compounded interest is calculated.

Ex. Rent started at $10,000 per year five years ago. It has escalated annually ever since. Current rent is $12,760 per year, 27.6% higher than five years ago. What percent did the rent increase each year?

You cannot simply divide 27.6% by 5 to get the actual annual escalation because there is compounded interest involved. If you take $10k and add 5.5% to it every year, after 5 years, you would have $12,823.59 or 28.24% more than you started with.

Answer 1

1) My calculator sez .04995 or 4.995% per year.
2) The compound interest formula (difficult to type) is:
Amount=Principle*(1+R)^n. Answer: (1+R)^(1/5)=12760/10000.
Solving for R: (1+R)=(1.2760)^(.2)=1.0499, thus R=.04995 or (close to) 5%
The ^ indicates an exponent and * indicates multiplication.
To check the answer, multiply 1.04995 by itself 4 times and the answer will be (approx.) 1.2759

Answer 2

27.6 divided by 5= 5.5% annually