Jeff has signed an auto lease contract.You will need to pay $400 at the beginning of...

Jeff has signed an auto lease contract.You will need to pay $400 at the beginning of each month for the next 5 years. Your personal discount rate is 4.2% APR. What is the present value of all yuor payments?

23,032.63

1,770.77

21,689.19

21,613.54

8,717.04

Solutions

Expert Solution

First Step to calculate answer in All time value of money options is to calculate the variables like rate, period, payment frequency, compunding etc.

So i this question monthly compunding is there so

N= 5 x 12 = 60, Rate = 4.2/12 = 0.35%, Monthly payment= 400 and payment is due at the beginning of month.

You can solve this with BGN or without BGN mode on texas BA 2.

With BGN mode = N=60,I/Y=0.35, PMT=400,Fv0= compute PV = 21689.19

Without BGN mode= N=59, I/Y= 0.35, PMT=400, FV=0, Compute PV= 21289.19 and then add 400 more in this payment you will get 21689.19. this is because 1st payment due today and no discount effect is there for 1st payment.

jeff jeffy answered 2 years ago

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