Question

YOUR CAR DEALER IS WILLING TO LEASE YOU A NEW CAR FOR $199 A MONTH FOR...

YOUR CAR DEALER IS WILLING TO LEASE YOU A NEW CAR FOR $199 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 5.45 PERCENT, WHAT IS THE CURRENT VALUE OF THE LEASE?

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Answer #1

Information provided:

Monthly payment= $199

Time= 72 months

Monthly interest rate= 5.45%/12= 0.4542%

The question is concerning finding the present value of an annuity due. Annuity due refers to annuity that occurs at the beginning of a period.

The financial calculator is set in the end mode.  Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2ndBGN 2ndSET on the Texas BA II Plus calculator.

The question can be solved by entering the below into the financial calculator:

PMT= 199

N= 72

I/Y= 0.4542

Press the CPT key and PV to compute the present value.

The value obtained is 12,253.14.

Therefore, the current value of the bond is $12,253.14.

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