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A lease agreement has a net present value of $26,496 at a rate of 8%. The lease involves an immediate down
payment of $10,000 followed by four equal annual payments.
What is the amount of the annual payment?I am confuse in their solution how to tackle this type of mcqs … earlier i ask u abt minimum contract price .. where u told me that yr0/rate -receipt .. this one i cant .. there is any specific formula for this type of mcq
Peter plans to buy a holiday villa in five years time for cash. He estimates the cost will be $1.5m. He plans to
set aside the same amount of funds each year for 5 years starting immediately earning a rate of 10% interest
per annum compound.
To the nearest $100, how much does he need to set aside each year?confuse in these 3 mcqs
Question 1:
There is no formal – it is basic discounting.
If the annual payment is X, then the total present value of all the payments must be $26,496
There are 4 payments, so the PV of these is X x 3.312 (the four year annuity factor at 8%)
So 10,000 + 3.312X = 26496
So 3.312X = 16496. Therefore X = $4981Question 2:
You can do this in more than one way. However the quickest way is as follows:
Let the amount each year be X. So they will be paying X immediately, followed by X p.a. for 5 years.
Calculate the PV in terms of X, which is:
X + 3.791X
However, we need this to be 1.5M in 5 years, so X + 3.791 must be equal to the PV of 1.5M in 5 years which is 1.5M x 0.621 = 931500X + 3.791X = 4.791X = 931500
X = 194427(Both of these are really Paper F2 questions – I do not think you will get much like this in F9!)
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