A car can be purchased by paying $27 000 now or can be leased by paying $725 per month for the
next four years, with the first payment due on the day of signing a lease. What nominal rate of
interest is charged on the lease?
Answers
Given : A car can be purchased by paying $27 000 now or can be leased by paying $725 per month for the next four years,
To find : with the first payment due on the day of signing a lease. What nominal rate of interest is charged on the lease
Solution:
with the first payment due on the day of signing a lease
Hence Down payment = 725
Remaining amount to be paid = 27000 - 725
= 26275
Numbers of EMI left = 47
Rate of interest R % per month or 12R% per annum
EMI= 725
EMI formula
EMI = P * (R/100) ( 1 + R/100)ⁿ /( ( 1 + R/100)ⁿ - 1)
725 = 26275 (R/100)(1 + R/100)ⁿ/( ( 1 + R/100)ⁿ - 1)
R approx 1.14% per month 13.6 % per annnum
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