Question

Raymond Financing leases airplanes to airline companies. Raymond has just signed a 20-year lease agreement that requires annual year-end lease payments of $900,000. What is the present value of the lease using a 10% interest rate?

Answer 1

Answer:

7662207.35

Explanation:

We are asked to find the present value of a 20 years annuity at rate equal 10%

$present \: value = annuity \times \frac{1 - {(1 + rate)}^{ - time} }{rate}$

$900000 \times \frac{1 - {1.1}^{ - 20} }{.1} = 7662207.35$

Remember:

on present time: power is negative and the 1 comes first

$1 - {(1 + rate)}^{ - time}$

on future value: the power is positive and comes first then you subtract 1

${(1 + rate)}^{time} - 1$