Annuity Short Cut Example - continued You agree to lease a car for 4 years at OMR300 per month

Finance Dec 01, 2020

Annuity Short Cut Example - continued You agree to lease a car for 4 years at OMR300 per month. You are not required to pay any money up front or at the end of your agreement. If your opportunity cost of capital is 0.5% per month, what is the cost of the lease?

Expert Solution

Lease payment per month (P)= 300

Total Months in 4 years (n)= 4*12= 48

Opportunity cost ínterest Rate per Month (I)= 0.5%

Cost of lease is present value of monthly lease payment that will be Calculated by PV of Annuity Formula.

PV of Annuity Formula = P*(1-(1/(1+I)^n))/I

=300*(1-(1/(1+0.5%)^48))/0.5%

=12774.09533

So cost of lease is 12774.10

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