You have just leased a car that has monthly payments of $335 for the next 4 years with the first payment due today. If the APR is 6.12 percent compounded monthly, what is the value of the payments today?

= $ 14,303.62

Explanation:

Total number of payments = 4 * 12 = 48

The present value of the lease payment will be determined as follows:

Step 1

Determine the PV of last 47 payments. This is required because the first payment is already in present value term as it receivable immediately.

PV = A * 1 - (1+r) ^ (-n)

r - 6.12%/12 = 0.51%, A = 335

PV = 335 * (1 - (1.0051) ^ (-47) / 0.0051)

PV = 335 * 41.697

PV = 13,968.62

Step 2

Present Value of Lease payments

= PV of last 47 payments + $335

= 13,968.62 + 335

= $ 14,303.62

The value of the payments today $ 14,303.62