Question

You just signed a five-year car lease. The lease requires you to make 5 equal annual payments of $14,000 with your first payment due immediately. Find the value of your lease if the interest rate is 5.2% p.a.

Answer #1

Value of Lease payments = Anuual Lease payment + Anuual Lease
payment / (1 + interest rate)^{1} + ...+ Anuual Lease
payment / (1 + interest rate)^{4}

Value of Lease payments = $14000 + $14000 / (1 +
5.2%)^{1} + ...+ $14000 / (1 + 5.2%)^{4}

Using present value interest factor of an annuity formula

Value of Lease payment = Annual lease payments * ((1 - (1 +
interest rate)^{- no of periods})/ interest rate) * (1 +
interest rate)

Value of Lease payment = $14000 * (1 - (1 + 5.2%)^{-5})
/ 5.2% * (1 + 5.2%)

**Value of Lease payment = $63,413.54**

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