A contract requires lease payments of $900 at the beginning of every month for 5 years. a. What is thepresent value of the contract if the lease rate is 5.50% compounded annually? b. What is the presentvalue of the contract if the lease rate is 5.50% compounded monthly?

a)To calculate the PV of the contract with an annual compounding interest rate, we first need to…

Answered: A contract requires lease payments of…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Lessee enters into a 10-year lease of property with annual lease payments of P50,000, payable at the beginning of each year. The contract specifies that lease payments will increase every two years on the basis of the increase in the Consumer Price Index for the preceding 24 months. The Consumer Price Index at the commencement date is 125. The rate implicit in the lease is not readily determinable. Lessee’s incremental borrowing rate is 5 per cent per annum, which reflects the fixed rate at which Lessee could borrow an amount similar to the value of the right-of-use asset, in the same currency, for a 10-year term, and with similar collateral. Discount factor for 5% for 9 periods is 7.10782.Lessee expects to consume the right-of-use asset’s future economic benefits evenly over the lease term and, thus, depreciates the right-of-use asset on a straight-line basis.At the beginning of the third year of the lease the Consumer Price Index is 135.Determine the amount of lease liability…
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A contract requires lease payments of $900 at the beginning of every month for 5 years. a . What is the present value of the contract if the lease rate is 5.50% compounded annually? b. What is the present value of the contract if the lease rate is 5.50% compounded monthly?