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    RobertNyarkoh's Avatar
    RobertNyarkoh Posts: 1, Reputation: 1
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    #1

    Jul 27, 2014, 04:42 PM
    How to calculate implicit interest rate in lease
    Finance lease of $5000 per year for 5year payment in advance for lease fair value of$20000.
    what is the implicit interest rate
    pready's Avatar
    pready Posts: 3,197, Reputation: 207
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    #2

    Jul 28, 2014, 06:27 AM
    First thing you need to know is the formula for interest. It is:

    Interest = Principal * Rate * Time

    Since you are trying to find out the interest rate the formula can be rewritten as:

    Rate = (Principal * Time) / Interest


    Your interest is your payments of $5,000 * 5 payments = $25,000 total payments - the principal of $20,000 = $5,000 Interest


    Your principal is $20,000 and your time is 5 years.
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