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5.4 Leases and Annuities Due

Learning Outcomes

Calculate the rate and cost of financing for car leases and understand annuities due.

Leasing a car (or vehicle) is much like renting a vehicle. The lessee (person leasing the car) makes a series of equal-sized payments (lease payments), at regular intervals over the course of a fixed time period (lease period). These payments will be smaller than loan payments. This is because at the end of the lease, the lessee either must pay an additional amount called the residual value to purchase the car or they must return the car to the car dealership. To calculate any of the above values, we enter the following in for each value:

PV Interest PMT FV
Amount Leased +  %Charged =   Lease Payments +   Residual Value
+ +

Leases are examples of annuities due. We will examine this term in the section below.

See the sections below for key formulas, tips and examples related to leases and annuities due.

definition

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