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The value of a 7 year lease that requires payments of $500 made at the beginning...

The value of a 7 year lease that requires payments of $500 made at the beginning of every month is $39,100. What is the nominal interest rate compounded monthly?

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Answer #1

Information provided:

Time= 7 years*12= 84 semi-annual periods

Monthly payment= $500

Future value= $39,100

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

This can also 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 2nd BGN 2nd SET on the Texas BA II Plus calculator.

The nominal interest rate is computed by entering the below in a financial calculator:

PMT= 500

N= 14

FV= 39,100

Press the CPT key and I/Y to calculate the nominal interest rate.

The value obtained is 23.62.

Therefore, the nominal interest rate compounded monthly is 23.62%.

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

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