Question

Sophie leased equipment worth $35,000 for 9 years. If the lease rate is 6.75% compounded monthly, calculate the size of the lease payment that is required to be made at the beginning of each month.

Answer 1

Information provided:

Present value= $35,000

Time= 9 years*12= 108 months

Monthly interest rate= 6.75%/12= 0.5625%

The question pertains to computing the value of annuity due. Annuity due refers to annuity that occurs at the beginning of a period.

This can be solved using a financial calculator by inputting the below into the calculator:

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 2^ndBGN 2^ndSET on the Texas BA II Plus calculator.

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

PV= -35,000

N= 108

I/Y= 0.5625

Press the CPT key and PMT to compute the value of annuity due.

The value obtained is 433.30.

Therefore, the size of the lease payment is $433.30.

In case of any query, kindly comment on the solution.