What is the effective interest rate on the same truck and loan terms except no buy-out option at the end of the lease and $40,000 truck FMV after 5 years?

To calculate the **effective interest rate** (or **implicit interest rate**) for a truck lease, we need to apply the financial concept of leasing, considering both the **lease payments** and the **residual value** (in this case, the FMV of $40,000). Since the truck lease doesn't include a buy-out option at the end, the problem focuses on the lease structure over 5 years.

However, the problem is missing some key details such as:
- **Lease payments** per period (monthly or annually).
- **Down payment** (if any).
- **Initial value** or **purchase price** of the truck (besides the FMV at the end).
- **Lease duration** (though we know it's 5 years).

If the truck's FMV after 5 years is $40,000 and the lease payments are structured over that time period, the effective interest rate can be determined by solving for the rate in the **lease's present value equation**.

### Step-by-step outline:

1. **Present Value (PV) of Truck**: Assume the truck's current value (principal).
2. **Lease Payments**: Either monthly or annually, based on terms.
3. **Future Value (FV)**: This would be $40,000 (FMV after 5 years).
4. **Duration**: 5 years (typically divided into 60 months or 5 annual periods).
5. **Effective Interest Rate (r)**: We use a financial formula or calculator to solve for the implicit interest rate.

Since we need lease payment amounts to proceed, could you provide that detail? Alternatively, if you have the truck's present price and lease payment structure, I can calculate the effective interest rate for you.

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Would you like to clarify the missing details? Here's a set of related questions to guide:

1. What is the initial purchase price or present value of the truck?
2. What are the regular lease payments (monthly or annually)?
3. Is there a down payment involved in this lease agreement?
4. Are the payments made monthly or annually?
5. Is there any additional cost or tax in the lease contract?

**Tip**: In leasing, knowing the **residual value** at the end of the term helps lower your lease payments, but it doesn’t affect the initial cash flow or down payment calculations.

Learn how to calculate the effective interest rate on a truck lease with no buy-out option and a $40,000 fair market value (FMV) after 5 years. Explore financial concepts such as present value, future value, and implicit interest rates, using key formulas related to leasing. Ideal for college-level finance students and professionals.

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