what is the effective interest rate on a lease for a 170,000 truck with $0 down, $4000 monthly payment over 5 years and a $1 buy-out option at the end

To calculate the **effective interest rate (EIR)** on the lease, we first need to recognize that the truck is being leased for 5 years with payments of $4,000 per month, and the buy-out option is $1 at the end, effectively making this lease similar to a loan where you're paying off the entire value over time.

The process for calculating the effective interest rate involves solving for the interest rate in the following **loan amortization formula**:

\[
PV = P \times \frac{1 - (1 + r)^{-n}}{r}
\]

Where:
- $PV$ is the present value or the truck's cost ($170,000),
- $P$ is the monthly payment ($4,000),
- $r$ is the monthly interest rate (which we need to find),
- $n$ is the number of total payments (5 years = 60 months).

We'll solve for $r$, the monthly interest rate, and then multiply by 12 to find the **annual effective interest rate (EIR)**. Let me calculate that.The **effective annual interest rate (EIR)** on the lease is approximately **15.51%**.

Would you like further details or have any questions?

Here are 5 related questions you might find useful:
1. How does the effective interest rate differ from the nominal interest rate?
2. What factors influence the effective interest rate on a lease?
3. How would the effective interest rate change if there was a down payment?
4. Can you calculate the total cost of the lease over the 5-year period?
5. How does the buy-out option affect the lease terms?

**Tip:** Always compare the effective interest rate to the market rate when considering lease or financing options to ensure you're getting a fair deal.

What is the effective interest rate on a lease for a $170,000 truck with $0 down, $4,000 monthly payment over 5 years, and a $1 buy-out option at the end?

Calculate the effective interest rate (EIR) on a lease for a $170,000 truck with $0 down and $4,000 monthly payments over 5 years, using the loan amortization formula. Learn how to solve for the EIR, key financial concepts, and the total cost of the lease.

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