You would like to buy a new computer. You see in a magazine advertisement that y
ID: 2759063 • Letter: Y
Question
You would like to buy a new computer. You see in a magazine advertisement that you can get a new 2.4 GHz Athlon eight-core computer system for $1,600. Alternatively, the ad says you can lease the computer for $56 a month. The lease would last 36 months, after which you would have the option to buy the computer for 10% of the original purchase price. Assuming you will purchase the computer at lease end, what annual rate of interest are you paying under the lease arrangement? (Hint: Think of yourself as issuing a bond to buy the computer.)
Please use the formula, do not just show me the anser with excel or calculator.
Explanation / Answer
formula for rate of interest = r = (1/t)(A/P - 1); R = r * 100
A = 56*30 + 160 = 2176
P = 1600
t = 12*3 = 36 months
Where:
r = (1/36)((2176/1600) - 1) = 0.01 r = .01*100 = 1% per month
Yearly rate = 1%*12 = 12% per Year
or
if lease is considered without lease purchase
formula for rate of interest = r = (1/t)(A/P - 1); R = r * 100
A = 56*30 = 2016
P = 1600
t = 12*3 = 36 months
Where:
r = (1/36)((2016/1600) - 1) = 0.00722 r = .007222*100 = .7222% per month
Yearly rate = .7222%*12 = 8.67% per Year
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