Question

You want to lease a riding mower from Mowers, Inc.. The lease contract is in the form of 36 equal monthly payments at a 7.2 percent stated annual rate, compounded monthly. Because the mower costs $10,000 retail, Mowers Inc. wants the present value of the lease payments to equal $10,000. Suppose your first payment is due immediately. What will your monthly lease payments be

Answer 1

Answer:

$307.83918 or $307.84

Explanation:

The computation of the monthly lease payment is shown below:

Given that

stated annual rate = s = 7.2% = 0.072

monthly rate = r = s ÷ 12 = 7.2 ÷ 12 = 0.6% = 0.006

number of equal monthly payments =  n = 36  

present value of the lease payments = p = $10,000

Based on the above information

let us assume the monthly lease payments be A

Now the following formula to be used

A × PVIFA(n,r) × (1 + r) = p

where,

PVIFA(n,r) is

= [ (1+r) n -1] ÷ ((1 + r)n × r)

= [ (1.006)36 -1] ÷ ((1.006)36  × 0.006)

= 32.29074882

Now  

A × 32.29074882 × (1.006) = $10,000

A = $10,000 ÷ (32.29074882 × 1.006)

= $307.83918 or $307.84