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?

Question

Business

Natalee Carey

23 December, 13:05

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?

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Sullivan · Answer 1

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