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Posted by on Saturday, April 30, 2011 at 11:39pm.

A used piece of rental equipment has 3½ years of useful life remaining. When rented, the equipment brings in $300 per month (paid at the beginning of the month). If the equipment is sold now and money is worth 5%, compounded monthly, what must the selling price be to recoup the income that the rental company loses by selling the equipment "early"?
(a) Decide whether the problem relates to an ordinary annuity or an annuity due.

1
annuity due
ordinary annuity
.
(b) Solve the problem.

  • math - , Sunday, May 1, 2011 at 6:41am

    The selling price= the present value of
    the annuity due.

    A(42)=300*(1-v^42)/(1-v) where v=1/(1+i)
    i=5%/12

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