You decide to lease a new BMW car. The vehicle costs $35,000 new and you\'re req

Question

You decide to lease a new BMW car. The vehicle costs $35,000 new and you're required to pay all taxes and an additional $5000 at the beginning of the lease. The lease payments are $600 per month for three years and you know the lease company charges interest at 6% compounded monthly.

a) What is the residual value of the car after 3 years? Show formula and your work.

b) How much interest do you pay over the life of the lease? Show your work.

c) How much principal do you pay in the 3rd year of the lease? Show your work.

Explanation / Answer

Present value of vehicle = future lease payments + residual value

35000 +5000 = 600*(1-1/(1+0.5%)^36)/(0.5%) + x/(1+0.5%)^36

Residual value ,X=

b) Value = Lease payments - interest + Residual value

35000 +5000 = 600*12*3 + 24265.56

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