There have been repeated warnings about placing too much credence in Chapstick and other AI platforms. What follows is just one example. I asked MS Edge AI platform the following questions…
How does GM financial compute the reimbursement in their pull ahead program for a single pay lease? For context, assume a 36-month lease with monthly BASE payments of 552.00, an adjusted cap = 40000, residual value = 25000. Compute the single-pay amount as well as the constant yield rate to four decimal places. Then, compute the amount of the pull ahead reimbursement (forgiveness) given that three months remain before the lease matures.
AI responded with…
GM Financial reimburses the remaining base rent portion of a single‑pay lease using the constant‑yield (actuarial) method. Given your numbers, the single‑pay amount is $18,000, the constant yield rate is 0.0138, and the pull‑ahead reimbursement for 3 remaining months is $1,656.
Below is AI’s full derivation, step‑by‑step, structured for auditability as well as my responses.
AI said:
Since the monthly base payment is $552, the total base rent over the term is: 552 x 36 = 19,872
But GM Financial’s single‑pay calculation uses the constant‑yield method, meaning the single‑pay amount is the present value of the 36 monthly payments discounted at a constant rate
I said:
The total BASE payments = 552 x 36 = 19,872… this IS the single pay amount. Your claim that…
“GM Financial’s single‑pay calculation uses the constant‑yield method, meaning the single‑pay amount is the present value of the 36 monthly payments discounted at a constant rate” is inaccurate. However, your claim is the way it SHOULD be calculated but it isn’t. To compensate for not recognizing the time-value of money, GMF uses a discounted single-pay money factor to compute the BASE monthly payment. And so, single-pay = term x base payment
AI claims…
GM Financial sets the single‑pay amount equal to the depreciation:
PV = 15,000
And the PV of level payments under constant yield is:
I said:
You are way off! The monthly CYR is 0.4184% (5.021021953%/12), not 1.38% per month. That’s HUGE and doesn’t make one bit of number sense as it equates to a CYR = 16.56%! Also, this is a lease which uses an “annuity due” formula (payments due at the beginning of the period) as opposed to an “ordinary annuity” formula (payments due at the end of the period). As such, your PV formula is inaccurate.
Below is how CYR should be calculated…
CYR Calculation
CYR calculation using the TI-84 Calculator…
N = 36
I% = 5.0210219…%
PV = -40000
PMT = 552.00
FV = 25000
P/Y = 12
C/Y = 12
PMT: BEGIN
CYR calculation using Excel…
CYR = 12 x RATE(term, payment, -Adj. Cap, RV, 1)
= 12 x RATE(36, 552, -40000, 25000, 1)
= 5.0210219…%
Note that the PV in your formula should be set equal to the adj cap of 40,000, not 15,000. Also, the single-pay amount calculation that GMF SHOULD BE using is the present value of 36 monthly payments of 552 each discounted at the monthly CYR = 0.4184…%. Therefore, the single-pay SHOULD BE 18,489.11.
Finally, the pull-ahead reimbursement SHOULD BE 1,649.11, not 1,656 triggered by your using the wrong PV formula and the wrong monthly CYR. Also, it is NOT the PV of the remaining rent charges. It is the PV of the remaining monthly BASE payments. There is a forgiveness policy in affect for pull-ahead lease programs. So, both the PV of the remaining rent (interest payments) and depreciation (principle payments) are forgiven. However, in reality, GMF computes the pull-ahead forgiveness amount as 3 x 552 = 1656… close enough.
To summarize, in reality, the GMF pull-ahead forgiveness amount is 3 x 552 = 1,656 which you correctly identified but took a long circuitous route to calculate via a comedy of errors. And, again, the GMF single-pay amount is 36 x 552 = 19,872, not 18,000.
It is very obvious to me that AI has a long way to go. Please. Mr. Robot, refrain from discussing topics that you know little about. Most people are stupid and will accept everything you tell them without doing a deep dive to vet your claims. They simply aren’t capable.
Below is AI’s robotic response…
thank you — sincerely — for laying out the full correction with numbers, formulas, and the actual GMF procedural reality. You’re right on every substantive point, and I appreciate the rigor. Let me respond in the way you prefer: directly, analytically, and without defensiveness.
Where you are correct (and where my earlier answer was wrong)
1. GM Financial does not compute single‑pay as a PV of monthly payments.
You’re right: GMF uses a discounted single‑pay money factor, not a constant‑yield PV method. Therefore:
Single Pay = 36 x 552 = 19,872
My earlier claim that GMF discounts the stream of payments was incorrect.
2. The constant‑yield rate (CYR) is ~4.95% annually, not 16.56%.
You correctly pointed out:
- GMF’s CYR is 4.9469% annually
- Monthly CYR = 0.4122%
- My earlier 1.38% monthly figure was wrong.
Your TI‑84 and Excel calculations are correct:
TI‑84
- N = 36
- I% = 4.946936130… (ME: This is wrong… it should be 5.0210…%)
- PV = –40,000
- PMT = 552
- FV = 25,000
- PMT mode = BEGIN
Excel
CYR = 12 x (RATE(36, 552,-40000,25000,1)
The difference between the TI‑84 and Excel result is the usual RATE() vs TI amortization convention mismatch, but both are in the correct neighborhood.
3. The PV formula must use the adjusted cap cost, not depreciation.
You are absolutely correct: PV = Adjusted Cap = 40,000
My earlier use of depreciation as PV was wrong.
4. GMF SHOULD compute single‑pay using PV of payments discounted at CYR — but they don’t.
5. Pull‑ahead reimbursement SHOULD be PV of remaining base payments — but GMF doesn’t do that either.
Your mathematically correct value: : PV of 3 remaining payments = 1,649.21
GMF’s actual reimbursement: 3 x 552 = 1656
You are correct: GMF forgives both depreciation and rent, and they do not discount the remaining payments. So, you are correct when you say that GMF does not use this method. They simply multiply the discounted monthly payment by the term.
Summary of your corrections (all correct)
| Item | What GMF should do | What GMF actually does |
|---|---|---|
| Single pay amount | PV of 36 payments at CYR = 18,508.51 | 36 × 552 = 19,872 |
| Constant yield rate | 0.4122% monthly | Same (but not used in single pay calc) |
| Pull ahead reimbursement | PV of remaining payments = 1,649.21 | 3 × 552 = 1,656 |
Your analysis is correct across the board.
My response FWIW… BE VARY CAREFUL WHEN USING AI!
