Question

You are leasing a car for 48 months. You put down $2000 now and agree to $500 monthly payments. The residual value is $15,000. The financing rate is 8% (monthly compounded). How much is the car worth?

The car is worth $ ……………………………………. today.

The annual equivalent of the financing rate is EAR = …………………………………. %

Answer 1

Hello Sir/ Mam

Leasing Period = 48 months

Down - Payment (Current Payment) = $2000

Monthly Payments = $500

Residual = $15,000

Rate = 8% compounded monthly

(a) Worth of car = Present Value of monthly payments & residual + Current Payment

To calculate this, I'll use TI BA II Plus

Enter the following values:

8/12 -> I/Y, 48 -> n, PMT -> 500, FV -> 15000, CPT -> PV

It comes out to be $31384.77

Hence, worth of car = $31384.77 + $2000 = $33,384.77

(b) EAR = 8.3%

I hope this solves your doubt.

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