Assume the prevailing interest rate is 8% per annum. A 4-year lease agreement requires you to pay $2,000 up front , followed by annual payments of $1,800 a year for the first two years
And $1,500 a year in the last year. What would the payment on a 4-year lease with a constant
Annual payment, with the first payment due immediately, have to offer for you to be
Indifferent between the two lease options? Round your answer to the nearest dollar.

Question

Quizplus · Accepted Answer

To find the constant annual payment, calculate the present value of the given lease payments and equate it to the present value of the constant payments. The present value of the given lease payments is $2,000 + $1,800/(1.08) + $1,800/(1.08^2) + $1,500/(1.08^3). Solving for the constant payment, we find it to be approximately $1,789.

Assume the Prevailing Interest Rate Is 8% Per Annum