Question

Sharae is looking to lease a pilates studio from studiorenter inc. the lease terms states that sharae must pay $5,000 every six months for 5 years; the studio is expected to last 7 years. the fair value of the studio is $52,000, and the annual interest rate is 4%. what is the present value of the lease payments?

1) $50,000
2) $55,000
3) $60,000
4) $65,000

Answer 1

To find the present value of the lease payments, use the formula for the present value of an annuity.

Step-by-step explanation:

To find the present value of the lease payments, we can use the formula for the present value of an annuity. The formula is: PV = PMT x [1 - (1+r)^(-n)] / r, where PV is the present value, PMT is the payment amount, r is the interest rate, and n is the number of periods. In this case, Sharae must pay $5,000 every six months for 5 years, so there are a total of 10 periods. The interest rate is 4%, so r = 0.04. Plugging these values into the formula, we get:

PV = $5,000 x [1 - (1+0.04)^(-10)] / 0.04 = $50,000

Therefore, the present value of the lease payments is $50,000.