Question

Your car dealer is willing to lease you a new car for $329 a month for 72 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 3.9 percent, what is the current value of the lease?

$21,158.75

$17,908.24

$19,533.49

$18,237.24

$21,487.75

Answer 1

The current value is computed as shown below:

Present value = Monthly payment x [ (1 – 1 / (1 + r)ⁿ) / r ]

r is computed as follows:

= 3.9% / 12 (Since the payments are monthly, hence divided by 12)

= 0.325% or 0.00325

So, the amount will be computed as follows:

= $ 329 x [ (1 - 1 / (1 + 0.00325)⁷² ) / 0.00325 ]

= $ 329 x 64.1039576

= $ 21,090.20205

Since the payments are in the beginning of the month, hence we need to multiply the above amount by:

= $ 21,090.20205 x (1 + r)

= $ 21,090.20205 x 1.00325

= $ 21,158.75 Approximately

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