Question

A construction company agreed to lease payments of ​$538.45 on construction equipment to be made at the end of every month for 4.25 years. Financing is at 11 % compounded monthly. ​(a) What is the value of the original lease​ contract? ​(b) If, due to​ delays, the first 6 payments were​ deferred, how much money would be needed after 7 payments to bring the lease payments up to​ date? ​(c) How much money would be required to pay off the lease after 7 ​payments? ​(d) If the lease were paid off after 7 ​payments, what would the total interest​ be? ​(e) How much of the total interest would be due to deferring the first 6 ​payments?

Answer 1

Answer

a)

lets calculate the value of the original lease​ contract

Payment = $538.45

n = 4.25 * 12 = 51

i = r/12 = 11%/12 = 0.92%

PVn ==> 538.45* (1 - 1/(1+0.92%)^51)/(0.92%)

==>538.45* ((1 - (1/1.59528887) /0.0092)

==>$21,840(rounded)

b)

Payment = 538.45, i = 0.92%, n = 7

FVn = 538.45 [( (1+0.92%)^7 - 1) / 0.0092]

FVn = 538.45* (7.1961) = $3875

c)

Balance at lease = 21840(1+0.0092)^7 = 23,286

d)

Interest = 23,286 - 21840 = $1446

e)

FVn = $3875

nrml payments = 538.45*7 = 3769

Additional interest = 3875-3769 = $106

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