Nathan leased a vehicle with monthly payments of $350 paid at the start of each month for 4 years. The lease agreement also stated that the vehicle had a $4,000 residual value. If the lease interest is at 7.5% compounded quarterly, determine the fair value of the leased vehicle.
A) $16,149.91
B) $16,949.91
C) $17,549.91
D) $18,208.91
E) $18,888.91

Question

Quizplus · Accepted Answer

The fair value of the leased vehicle is calculated by finding the present value of the annuity (monthly payments) and the present value of the residual value. The interest rate needs to be converted to a monthly rate, and the present value of the annuity and residual value are calculated using this rate. The correct calculation results in a fair value of $17,549.91.

Nathan Leased a Vehicle with Monthly Payments of $350 Paid