The Rogers Leasing Company signed an agreement to lease an asset that has a fair value of $800, 000 on December 31, 2010.The lease will be paid in seven equal annual payments of $138, 730, beginning on December 31, 2010.The interest rate included in the lease agreement is
A)8%
B)7%
C)6%
D)5%

Question

Quizplus · Accepted Answer

We can use the present value formula to calculate the interest rate included in the lease agreement.

PV of lease payments = Lease payments * [1 - 1/(1+r)^n] / r,

where r is the interest rate and n is the number of periods.

Plugging in the known values, we get:

$800,000 = $138,730 * [1 - 1/(1+r)^7] / r

Solving for r, we get:

r = 7%

Therefore, the interest rate included in the lease agreement is 7%. So, the correct answer is B.

The Rogers Leasing Company Signed an Agreement to Lease an Asset