Question

Trevor leased equipment worth $35,000 for 6 years. If the cost of borrowing is 7.16% compounded quarterly, calculate the size of the lease payment that is required to be made at the beginning of each quarter. (Round to the nearest cent)

Answer 1

To calculate the size of the lease payment, you can use the formula for the Present Value of an Annuity. In this case, the lease payment required at the beginning of each quarter is approximately $1,132.76.

Step-by-step explanation:

To calculate the size of the lease payment, we can use the formula for the Present Value of an Annuity:

PV = PMT x ((1 - (1 + r)^-n) / r)

Where PV is the present value, PMT is the lease payment, r is the interest rate per period, and n is the total number of periods.

In this case, the present value (PV) is $35,000, the interest rate (r) is 7.16% compounded quarterly, and the total number of periods (n) is 6 years x 4 quarters in a year = 24 quarters.

Substituting the values into the formula:

$35,000 = PMT x ((1 - (1 + 0.0716/4)^-24) / 0.0716/4)

Solving for PMT, the lease payment required at the beginning of each quarter is approximately $1,132.76.