What is the book value (present value) of a lease requiring payments of $1000 at the beginning of each month for five years if the lessee's cost of borrowing is 10% compounded semiannually?

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Quizplus · Accepted Answer

The book value or present value of the lease can be calculated using the formula for the present value of an annuity due (payments at the beginning of each period). Given the monthly payments ($1000), the number of periods (5 years * 12 months = 60 periods), and the monthly interest rate (10% annual rate compounded semiannually does not directly apply; for monthly compounding, it's more accurate to use 10%/12 = 0.833% per month), the calculation yields the closest value to $47,672.56. Note that the exact calculation might slightly vary based on the specific method used for adjusting the semiannual rate to a monthly rate, but among the provided options, A is the closest and correct choice.

What Is the Book Value (Present Value) of a Lease