Payments on a six-year lease value of a car at $27 175.00 are to be made at the beginning of each month during the last 3 years of the lease. If interest is 7.25% compounded monthly, what is the size of the monthly payments?

Question

Quizplus · Accepted Answer

To find the monthly payment, we use the formula for the present value of an annuity due (payments at the beginning of each period) since payments are made at the beginning of each month. The formula is $PMT = \frac{PV}{\frac{1 - (1 + r)^{-n}}{r} \times (1 + r)}$, where PMT is the monthly payment, PV is the present value of the lease ($27,175), r is the monthly interest rate (7.25% annual rate divided by 12 months = 0.00725), and n is the total number of payments (3 years * 12 months/year = 36 months). Plugging in the values, we solve for PMT, which gives us approximately $1039.85.

Payments on a Six-Year Lease Value of a Car at $27