Question

A credit union entered a lease contract valued at $7900. The contract provides for payments at the end of each quarter for 2 years. If interest is 4.5% compounded quarterly​, what is the size of the quarterly ​payment?

Answer 1

To find the size of the quarterly payment, use the formula for the present value of an ordinary annuity.

Step-by-step explanation:

To find the size of the quarterly payment, we can use the formula for the present value of an ordinary annuity. The present value formula is:

PV = C((1-(1+r)^(-n))/r)

Where PV is the present value (the value of the lease contract), C is the quarterly payment, r is the interest rate per period (0.045), and n is the number of periods (8).

Plugging in the values, we have:

7900 = C((1-(1+0.045)^(-8))/0.045)

Solving for C, we find that the quarterly payment is approximately $537.99.