Question

You have just leased a car that has monthly payments of $385 for the next 5 years with the first payment due today. If the APR is 7.32 percent compounded monthly, what is the value of the payments today?

Answer 1

Answer:

Total Value                      =5563.131709

Explanation:

using the annuity formula to find out the present value of lease rentals

p=R*(1-(1+i)^-n)/i

Total rental monthly =5*60 = 60

I=7.32% monthly

R=385$ monthly

Since we have:

Value of the first is same i.e $385

Value of remaining 59 payments as follows

P=385*(1-(1+7.32%)^-59)/7.32%

P=385*(1-0.015482491 )/7.32%

P=385* 0.984517509 /7.32%

P=385*13.44969275

P=5178.131709

Value of 59 rental          = 5178.131709

Add: Value of 1st rental  = 385

Total Value                      =5563.131709