Question

collegelink/#/course-resource/section/7304/assignment/12549 Question 7 of 7 A contract requires lease payments of $500 at the beginning of every month for 6 years. a. What is the present value of the contract if the lease rate is 5.40% compounded annually? $0.00 Round to the nearest cent b. What is the present value of the contract if the lease rate is 5.40% compounded daily? Round to the nearest cent Review Incomplete Questions Submit Assignment

Answer 1

The above question can be solved using excel functions.

a) payment every month =$500

number of years =6

lease rate = 5.4%, compounded annually.

using excel function => =PV(5.4%,6,-$500,1)

= $2,504.97

where, pv function gives present value of future investments

rate= 5.4%

nper=6

pmt=$500

type = 1(payment beginning of month)

b)

payment every month =$500

number of years =6

lease rate = 5.4%, compounded daily.

using excel function => =PV(5.4%/365,6*365,-$500,1)

= $9,35,252.38

rate= 5.4%/365
where, pv function gives present value of future investments

nper=6*365

pmt=$500

type = 1(payment beginning of month)

Since the compounding is done daily lease rate and no of periods are adjusted accordingly.