Refer to the following lease amortization schedule. The five payments are made annually starting with the beginning of the lease. A $2,000 purchase option is reasonably certain to be exercised at the end of the five-year lease. The asset has an expected economic life of eight years.

-What is the effective annual interest rate?
A) 9%.
B) 10%.
C) 11%.
D) 20%.

Question

Refer to the following lease amortization schedule. The five payments are made annually starting with the beginning of the lease. A $2,000 purchase option is reasonably certain to be exercised at the end of the five-year lease. The asset has an expected economic life of eight years.

-What is the effective annual interest rate?

-What is the effective annual interest rate?
A) 9%. 
B) 10%. 
C) 11%. 
D) 20%.

Quizplus · Accepted Answer

$2,660/$26,600 = 10% (from payment 2)

Refer to the Following Lease Amortization Schedule