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Homework answers / question archive / A lease requiring equal payments at the beginning of every three months for eight years is valued as a liability of $83,455 using an interest rate of 7

A lease requiring equal payments at the beginning of every three months for eight years is valued as a liability of $83,455 using an interest rate of 7

Finance

A lease requiring equal payments at the beginning of every three months for eight years is valued as a liability of $83,455 using an interest rate of 7.2% compounded annually. What is the size of the quarterly lease payments?

Round the final answer to the two decimal places as needed. Round all intermediate values to six decimal places as?needed.)

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Answer : Calculatation of Size of Lease Payament :

Using Present Value of Annuity due Formula

= Present Value * [r / 1 - (1 + r)^(-n)] * [1 / (1 + r)]

where

r is the rate of interest per period = 7.2% or 0.072 / 4 = 0.018 [Divided by 4 as quarterly payments]

n is the number of payments i.e 8 * 4 = 32 [Multiplied by 4 as quarterly payments]

= 83455 * [0.018 / 1 - (1 + 0.018)^(-32)] * [1 / (1 + 0.018)]

= 83455 * [0.018 / 0.434971] * [0.982318]

= 83455 * 0.041382 * 0.982318

= 3392.48

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