Example - Implicit Rate on a Lease

Example - Implicit Rate on a Lease

Facts     Christopher is considering leasing a new automobile through PML Leasing. The fair market value of the automobile on October 15, 2025 is $35,948.40. The lease calls for $5,008.83 due on the date of the lease and 60 monthly payments of $401.06 beginning November 15, 2025. The estimated value of the vehicle at the end of the term (October 15, 2030) is $19,411.92.

Needed     The rate (implicit rate) on the lease.

Settings     This example assumes Normal amortization (Compute Method) and a Year Length of 365 days (set in the Calculations group on the Configuration ribbon).

  1. Enter the lease's cash flow information as shown below.

    ** SCREEN SHOT HERE **

    Notice that in this example the Date of the Residual is the same as the End Date of the Lease Payments.

  2. Press [F9], [Ctrl]+[U], or click Calculate from the Compute group to compute the implicit rate.

Solution     The implicit rate on the lease is 9.742%.