Each August, a restaurant’s rent is adjusted to the cost of living index. The rent has been $1,550 a month, and the cost of living index for this August was 3.7%. What is the new rent per month?
The correct answer and explanation is :
To calculate the new rent after the 3.7% increase, we can follow these steps:
Step 1: Find the increase in rent
The current rent is \$1,550. To find the amount of the increase, we need to multiply the current rent by the percentage increase in decimal form.
The percentage increase is 3.7%, which can be written as 0.037 in decimal form.
So, the increase in rent is:
$$
\text{Increase} = 1,550 \times 0.037 = 57.35
$$
Step 2: Add the increase to the original rent
Next, to find the new rent, we add the increase to the current rent:
$$
\text{New rent} = 1,550 + 57.35 = 1,607.35
$$
Final Answer:
The new rent per month is \$1,607.35.
Explanation:
Rent adjustments based on the cost of living index are commonly used to ensure that the rent keeps pace with inflation or increases in the cost of living. In this example, the current rent is \$1,550 per month, and the cost of living index increase for this year is 3.7%. The cost of living index reflects the average change in prices that consumers typically pay for goods and services.
To find the new rent, we calculate the increase by multiplying the current rent by the percentage increase. The result tells us how much the rent will go up. After calculating this, we add the increase to the original rent to get the new rent amount.
This method ensures that the landlord’s rental income keeps up with rising costs, which may include things like utilities, maintenance, and property taxes. By linking rent increases to a reliable index, both tenants and landlords can understand how and why the rent changes each year.