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guapka [62]
3 years ago
12

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?
Business
1 answer:
irinina [24]3 years ago
3 0

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

<u>R</u><u>emember:</u>

<em>on present time:</em> power is negative and the 1 comes first

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

<em>on future value:</em> the power is positive and comes first then you subtract 1

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

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