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

7662207.35

Step-by-step explanation:

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

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

`900000 * \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`