1)You have just leased a car that has monthly payments of $395 for the next 4 years with the first payment due today

Finance Oct 13, 2020

1)You have just leased a car that has monthly payments of $395 for the next 4 years with the first payment due today. If the APR is 7.56 percent compounded monthly, what is the value of the payments today?

2)Roger has just lost a lawsuit and has agreed to make equal annual payments of $15,300 for the next 7 years with the first payment due today. The value of this liability today is $85,000. What is the interest rate on the payments?

Expert Solution

1)please see the attached file.

Answer:

Given

Annuity Due A=$15300

Value of Liability L=$85000

Number of Years N=7 years

Let r be the interest rate

L=A+A*(1-(1+r)^(N-1))/r)

85000=15300+15300*(1-(1+r)^6)/r

Solving for r we get r=8.49%

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