Question

1.

Your car dealer is willing to lease you a new car for $429 a month for 48 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 5.3 percent, what is the current value of the lease?

	$18,574.76
	$18,600.76
	$19,148.09
	$19,080.49
	$18,524.52

2.

You are considering an annuity which costs $96,267 today. The annuity pays $5,500 a year. The rate of return is 5 percent. What is the length of the annuity time period? (Do not round intermediate calculations.)

42.65 years

17.50 years

64.16 years

8.41 years

21.32 years

Answer 1

PV of the lease = 429 * ((1-(1+(5.3%/12))^-48)/(5.3%/12)) * (1+5.3%/12)

PV of Lease = 429 * 43.167757 * 1.004417 = 18600.76

Answer 2)

PV of annuity = 96267

Annual payment = 5500

Rate of return = 5%

Time = t years

PV = A * ((1-(1+r)^-t)/r)

96267 = 5500 * (1-(1+5%)^-t)/5%

1-(1+5%)^-t = 96267 * 5% / 5500

1-(1+5%)^-t = 0.875155

1.05^-t = 0.124845

-t * log (1.05) = log (0.124845)

-t = -0.903629/0.021189 = -42.65

Therefore t = 42.65

Length of the annuity is 42.65 years