Question

What is the future worth of 20 quarterly lease payments of $500 at an interest rate of 8%? Remember that lease payments are not paid at the end of each period.

Answer 1

The future worth can be determined as follows

(interest rate is 8% per year).

$\large FW = 500[(1+0.02)^{19} +(1+0.02)^{18}+....+ (1+0.02)^0]$

$\large \implies FW = 500(F/A,2\%,20)$

$\large \implies FW = 500\times \frac{1.02^{20}-1}{0.02}$

$\large \implies FW = 500\times 24.2973$

$\large \implies FW \approx \$ \ 12,148.69$

The future worth just after making the last payment will be equal to $ 12,148.69.

In question the time is not mentioned thus, I have used the time when last payment is made.

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