Question
In: Finance
You want to lease a set of golf clubs from Pings Ltd.
You want to lease a set of golf clubs from Pings Ltd. The ease contract is in the form of 24 equal quarterly payments at a 10% stated annual interest rate compounded quarterly. The present value of lease payment is equal to $2500. Suppose that your first payment is due immediately. What will your quarterly lease payment be?
Solutions
Expert Solution
This is case of annuity where
Interest rate = 10% p.a. compounded quarterly
Interest Rate = 10% / 4 = 2.5% per quarter
Number of Quarters = 24
Present Value of Annuity = $2500
Since the 1st annuity is due immediately, we need to find out the present value of only 23 annuitites and add to that the periodic payment amount.
We know,
Present Value of Annuity = 
+ Periodic Payment
2500 = (P / 2.5%) * (1 - 1 / (1 + 2.5%)23 ) + P
2500 = 40P * 0.433 + P
2500 = 17.33 P + P
P = 2500 / 18.33
P = 136.37
Quarterly lease payment should be $136.37.
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